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Here's Why You Should Avoid Betting on Allegion (ALLE) Now

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Allegion plc (ALLE - Free Report) has failed to impress investors with its recent operational performance on account of the tough end-market conditions amid the coronavirus outbreak, which are expected to negatively impact its earnings.

The Zacks Rank #4 (Sell) company has a market capitalization of $9.4 billion. In the past six months, it has lost 15.9% compared with the industry’s decline of 13.6%.

 



 

Inside the Headlines

Going forward, periodic work shutdowns at some of Allegion's operations on lower customer demand and material shortages will likely affect its top-line performance. Notably, the duration of the coronavirus pandemic and the impacts of the governmental regulations imposed in response to the crisis will likely have a bearing on the company’s results.

Also, Allegion has been experiencing rising costs and expenses over time. For instance, in the last five years (2015-2019), its cost of sales increased 6% (CAGR). Also, its cost of sales increased 0.9% in the first quarter of 2020 on a year-over-year basis. In addition, incremental investments incurred by the company had an adverse impact of 2 cents on earnings in first-quarter 2020. We believe that rise in costs and expenses, if unchecked, might continue to prove detrimental to its finances in the quarters ahead.

Moreover, a highly leveraged balance sheet remains a major concern for the company. Notably, its long-term debt remains high at $1,428 million at the end of the first quarter of 2020. Also, we find the company more leveraged than the industry. The stock’s long-term debt-to-capital is 69.9%, higher than the industry’s 38.9%. It is worth mentioning here that the company’s cash and cash equivalents were just $245.3 million at the end of the first quarter.

In addition, analysts have become increasingly bearish about the company over the past 60 days. Its earnings estimates for 2020 and 2021 have been lowered by 12.6% and 11.2%, respectively, over the same time frame.

Stocks to Consider

Some better-ranked stocks are Activision Blizzard, Inc. , Astec Industries, Inc. (ASTE - Free Report) and Energy Recovery, Inc. (ERII - Free Report) . While Activision Blizzard currently sports a Zacks Rank #1 (Strong Buy), Astec Industries and Energy Recovery carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Activision Blizzard delivered a positive earnings surprise of 31.34%, on average, in the trailing four quarters.

Astec Industries delivered a positive earnings surprise of 6.68%, on average, in the trailing four quarters.

Energy Recovery delivered a positive earnings surprise of 66.67%, on average, in the trailing four quarters.

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