Zacks Industry Outlook Highlights MSA Safety Incorporated, Napco Security Technologies and Cadre Holdings
For Immediate Release
Chicago, IL – March 27, 2024 – Today, Zacks Equity Research discusses MSA Safety Incorporated MSA, Napco Security Technologies, Inc. NSSC and Cadre Holdings, Inc. CDRE.
Industry: Security & Safety Services
Link to article: https://www.zacks.com/commentary/2245879/3-stocks-to-buy-from-the-thriving-security-and-safety-services-industry
3 Stocks to Buy From the Thriving Security and Safety Services Industry
The Zacks Security and Safety Services industry is poised to benefit from strong demand for products and solutions, supported by growing awareness about the security and safety of people and infrastructure. Higher research and development activities supported by governments and a deceleration in inflation augur well for the industry’s near-term prospects.
The increase in demand for cybersecurity products is supporting several industry participants as well. Companies like MSA Safety Incorporated, Napco Security Technologies, Inc. and Cadre Holdings, Inc. are poised to take advantage of the buoyancy in the industry.
About the Industry
The Zacks Security and Safety Services industry comprises companies that provide sophisticated and interactive security solutions and related services, which are meant to be used for residential, commercial and institutional purposes. A few industry players develop electrical weapons for personal defense and military, federal, law enforcement and private security. Some of them provide solutions for the recovery of stolen vehicles, wireless communication devices, equipment for the safety of facility infrastructure and employees and products for detecting hazards. A few companies provide a variety of services to automobile owners and insurance companies. The industry serves customers from various end markets, including manufacturing, electronics, hospitality, education, construction, telecommunications, aerospace and medical.
3 Trends Shaping the Future of the Security and Safety Services Industry
Solid Demand for Security and Safety Services: Growing instances of terrorism and criminal activities with concerns related to the ever-increasing fraudulent activities are promoting demand for security and safety services. For example, in order to enhance the safety and surveillance of people or assets, governments, commercial operations, communities and other establishments across the world are rapidly deploying IP-based cameras. This is acting as a key growth driver for the industry. Also, with growing urbanization, the increasing requirement to ensure the safety and security of infrastructure at offices, factories and residential buildings is aiding industry participants. With rising instances of hacking, the industry is seeing growing demand for Internet security products and services like firewalls, intrusion detection system (IDS) and intrusion prevention system (IPS). People preferring to purchase products through e-commerce platforms has also opened up opportunities for industry players.
Other Favorable Trends: Increases in budgets and funds from governments have invited several big players to make significant investments in the research and development of advanced products and services. For instance, government and law enforcement agencies in the United States and Canada are directly working with industry participants to strengthen the security infrastructure of smart cities. A reduction in raw material costs, thanks to the deceleration in inflation, has been supporting the bottom line of the industry players.
High Debt Levels: The industry participants constantly focus on innovation, product upgrades and the development of new products to cater to the changing customer needs and stay competitive, making steady investments necessary. While this augurs well for the industry’s long-term growth, hefty investments in research and development often leave companies with highly leveraged balance sheets.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Security and Safety Services industry, housed within the broader Industrial Products sector, currently carries a Zacks Industry Rank #36. This rank places it in the top 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping more faith in this group's earnings growth potential. The industry’s earnings estimates for the current year have increased 1.5% in the past six months.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Underperforms Sector & S&P 500
The Zacks Security and Safety Services industry has underperformed both the broader sector and the Zacks S&P 500 composite index in the past year.
Over this period, the industry has gained 17.5% compared with the sector’s and the S&P 500 Index’s increase of 28.9% and 31.4%, respectively.
Industry's Current Valuation
On the basis of forward P/E (F12M), which is a commonly used multiple for valuing security and safety services stocks, the industry is currently trading at 20.42X compared with the S&P 500’s 21.40X. However, it exceeds the sector’s P/E (F12M) ratio of 19.06X.
Over the past five years, the industry has traded as high as 27.04X, as low as 12.65X and at the median of 19.46X, as the chart below shows:
3 Security and Safety Services Stocks to Buy
MSA Safety: The company is engaged in the development, manufacture and supply of safety products that protect people and facility infrastructures. The company's core products include self-contained breathing apparatus, fixed gas and flame detection systems, air-purifying respirators and gas masks, among others. Strengthening demand for its firefighter safety products, detection and industrial PPE technologies and solid operational execution have been driving the company’s performance of late. A favorable product mix and improved supply chain conditions are likely to be beneficial moving ahead.
In the past 60 days, the Zacks Rank #1 (Strong Buy) stock’s earnings estimates have increased 4.3% for 2024. Its shares have surged 44.5% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Napco Security Technologies: The company offers access control systems, door-locking products, intrusion and fire alarm systems, and video surveillance systems for commercial, residential, institutional, industrial and governmental applications. The Zacks Rank #1 company has been benefiting from strong recurring service revenues, improvement in the supply chain and focus on product innovation. Solid demand for its products in school, healthcare and multi-dwelling commercial and residential applications markets is expected to drive its performance in the quarters ahead.
The Zacks Consensus Estimate for Napco Security’s fiscal 2024 (ending June 2024) earnings has been revised upward by 16.1% in the past 60 days. Shares of NSSC have appreciated 3.7% in the past year.
Cadre Holdings: The company is a manufacturer and distributer of safety and survivability equipment for first responders. Its core product lines include body armor, explosive ordnance disposal equipment and duty gear. Going forward, the Zacks Rank #2 (Buy) company is poised to benefit from strong demand for its mission-critical safety equipment, acquisitions of Alpha Safety and ICOR Technology and the implementation of the Cadre operating model.
The Zacks Consensus Estimate for Cadre Holdings’ 2024 earnings has been revised upward by 7.3% in the past 60 days. Shares of the company have skyrocketed 76.7% in the past year.
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NAPCO Security Technologies, Inc. (NSSC) : Free Stock Analysis Report
MSA Safety Incorporporated (MSA) : Free Stock Analysis Report
Cadre Holdings, Inc. (CDRE) : Free Stock Analysis Report
