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Near-Term View Solid for Security and Safety Services Stocks
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The Zacks Security and Safety Services industry comprises companies that provide sophisticated and interactive security solutions and related services. Such products and services are mainly used for residential, commercial and institutional purposes. Meanwhile, a few industry players develop electrical weapons for personal defense as well as military, federal, law enforcement and private security.
There are also companies that provide solutions for recovery of stolen vehicles, wireless communication devices, equipment for safety of facility infrastructure and employees, variety of services to automobile owners and insurance companies and products for detecting hazards. Many of these companies serve manufacturing, electronics, construction, telecommunications, aerospace, medical and others end markets.
Here are the three major industry themes:
Globally, the security and safety market is benefiting from the need to deal with fraudulent activities and growing concerns among corporates to provide safe and secure working environment to their workers. Further, security of facility infrastructure is a priority for companies and thus represents a major driver for this industry. Developed nations like the United States offer solid opportunities to industry players owing to increasing demand from non-residential market, remodeling activities and other tailwinds. On the other hand, increased industrial activities in emerging markets are a boon.
Innovation plays a vital role for this industry. Constant update of products and services is required to keep up with changing customer needs, making steady investments necessary. In addition to these, the companies often make acquisitions to broaden their product portfolio and geographical footprint. Such massive investments often leave the companies with a highly leveraged balance sheet. Johnson Controls International plc (JCI - Free Report) had long-term debt of $5,920 million as of Dec 31, 2019. Also, sourcing labor in various end markets, especially in construction, is a pressing concern. Commodity inflation, rise in other expenses, adverse impact of tariffs and high logistic costs, which eat into margins, are added woes.
Softness in the construction market of nations like Canada and others are creating problems for some of the industry players. For instance, Fortune Brands Home & Security, Inc.’s Cabinets segment suffered from weakness in Canadian and Mexican operations in the fourth-quarter 2019. For the near term, flat to declining housing market in Canada and Mexico might be concerning. Another company, ADT Inc. (ADT - Free Report) divested its Canadian operations in November 2019, believing the move will help it focus on the high-margin business in the United States. On the other hand, Allegion plc (ALLE - Free Report) ceased operations at its Turkey-based production facility in 2019.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Security and Safety Services industry is a 20-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #114, which places it in the top 45% 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 impressive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of bright earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. The industry’s earnings estimates for the current year have moved up 2.7% from the figure at the end of October 2019.
We present a few stocks that have solid growth opportunities. Before we discuss the stocks, it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector, Lags S&P 500
The Zacks Security and Safety Services industry has outperformed its sector in the past year. The industry gained 11.3% compared with the sector’s increase of 6.4%. However, the industry’s growth lagged the S&P 500’s increase of 18.6% during the same timeframe.
One-Year Price Performance
Security and Safety Services Industry’s Valuation
EV/EBITDA ratio is commonly used for valuing security and safety services stocks.
The industry’s forward 12-month EV/EBITDA ratio is 14.76. This clearly shows that the industry is trading above the S&P 500’s forward 12-month EV/EBITDA ratio of 13.54 and below the sector’s 17.81.
Over the past five years, the industry has traded at the highest level of 21.49X forward 12-month EV/EBITDA and the lowest level of 5.75X. The median level, over the same period, was 9.41X.
Security and Safety Services Industry’s Valuation Versus Sector
Security and Safety Services Industry’s Valuation Versus S&P 500
Bottom Line
Though prevalent headwinds are a concern, we believe a number of factors act as tailwinds and create solid growth opportunities for industry players. The majority of the stocks within this industry currently carry a Zacks Rank #3 (Hold) or 4 (Sell).
We present four stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and impressive earnings prospects, which investors might be interested in.
A brief discussion on the chosen stocks is provided below:
Its earnings estimate for fiscal 2020 (ending March 2020) has increased 34.6% in the past 60 days.
Price and Consensus: NLOK
Intellicheck, Inc. (IDN - Free Report) : Stock of this Melville, NY-based company has surged 222.6% in the past year. The stock currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for the company’s 2020 earnings per share has improved from break-even level to 10 cents in the past 60 days. The estimate indicates year-over-year growth of 150%.
Price and Consensus: IDN
Alarm.com Holdings, Inc. (ALRM - Free Report) : Stock of this Tysons, VA-based company has decreased 28.4% in the past year. The stock currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for the company’s 2020 earnings per share has remained stable in the past 60 days.
Price and Consensus: ALRM
Johnson Controls International plc: The stock of this Cork, Ireland-based company has increased 17% in the past year. The stock currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for its fiscal 2020 (ending September 2020) earnings per share has risen 0.4% in the past 60 days.
Price and Consensus: JCI
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Near-Term View Solid for Security and Safety Services Stocks
The Zacks Security and Safety Services industry comprises companies that provide sophisticated and interactive security solutions and related services. Such products and services are mainly used for residential, commercial and institutional purposes. Meanwhile, a few industry players develop electrical weapons for personal defense as well as military, federal, law enforcement and private security.
There are also companies that provide solutions for recovery of stolen vehicles, wireless communication devices, equipment for safety of facility infrastructure and employees, variety of services to automobile owners and insurance companies and products for detecting hazards. Many of these companies serve manufacturing, electronics, construction, telecommunications, aerospace, medical and others end markets.
Here are the three major industry themes:
Zacks Industry Rank Indicates Bright Prospects
The Zacks Security and Safety Services industry is a 20-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #114, which places it in the top 45% 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 impressive near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of bright earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. The industry’s earnings estimates for the current year have moved up 2.7% from the figure at the end of October 2019.
We present a few stocks that have solid growth opportunities. Before we discuss the stocks, it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector, Lags S&P 500
The Zacks Security and Safety Services industry has outperformed its sector in the past year. The industry gained 11.3% compared with the sector’s increase of 6.4%. However, the industry’s growth lagged the S&P 500’s increase of 18.6% during the same timeframe.
One-Year Price Performance
Security and Safety Services Industry’s Valuation
EV/EBITDA ratio is commonly used for valuing security and safety services stocks.
The industry’s forward 12-month EV/EBITDA ratio is 14.76. This clearly shows that the industry is trading above the S&P 500’s forward 12-month EV/EBITDA ratio of 13.54 and below the sector’s 17.81.
Over the past five years, the industry has traded at the highest level of 21.49X forward 12-month EV/EBITDA and the lowest level of 5.75X. The median level, over the same period, was 9.41X.
Security and Safety Services Industry’s Valuation Versus Sector
Security and Safety Services Industry’s Valuation Versus S&P 500
Bottom Line
Though prevalent headwinds are a concern, we believe a number of factors act as tailwinds and create solid growth opportunities for industry players. The majority of the stocks within this industry currently carry a Zacks Rank #3 (Hold) or 4 (Sell).
We present four stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and impressive earnings prospects, which investors might be interested in.
A brief discussion on the chosen stocks is provided below:
NortonLifeLock Inc. : The stock of this Tempe, AZ-based company has decreased 12.5% over the past year. The stock currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Its earnings estimate for fiscal 2020 (ending March 2020) has increased 34.6% in the past 60 days.
Price and Consensus: NLOK
Intellicheck, Inc. (IDN - Free Report) : Stock of this Melville, NY-based company has surged 222.6% in the past year. The stock currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for the company’s 2020 earnings per share has improved from break-even level to 10 cents in the past 60 days. The estimate indicates year-over-year growth of 150%.
Price and Consensus: IDN
Alarm.com Holdings, Inc. (ALRM - Free Report) : Stock of this Tysons, VA-based company has decreased 28.4% in the past year. The stock currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for the company’s 2020 earnings per share has remained stable in the past 60 days.
Price and Consensus: ALRM
Johnson Controls International plc: The stock of this Cork, Ireland-based company has increased 17% in the past year. The stock currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for its fiscal 2020 (ending September 2020) earnings per share has risen 0.4% in the past 60 days.
Price and Consensus: JCI
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>