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4 Stocks With Earnings Potential in Security Services Industry

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Players in the Zacks Security and Safety Services industry are benefiting from the rising demand for products and solutions, which ensure infrastructure safety at residential complexes, offices and factories. The increasing need for cyber-security products is also aiding the industry participants.

The players are likely to gain from an increase in online demand. However, the impacts of the pandemic on new constructions, renovation projects and spending on commercial buildings are expected to remain concerning. Johnson Controls International plc (JCI - Free Report) , Allegion plc (ALLE - Free Report) , Brady Corporation (BRC - Free Report) and Ituran Location and Control Ltd. (ITRN - Free Report) have solid earnings prospects.

About the Industry

The Zacks Security and Safety Services industry comprises companies that provide sophisticated and interactive security solutions and related services meant to be used for residential, commercial and institutional purposes. A few industry players develop electrical weapons for personal defense as well as military, federal, law enforcement and private security. There are other companies, which 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 players provide a variety of services to automobile owners and insurance companies. Customers belong to various end markets, including manufacturing, electronics, hospitality, education, construction, telecommunications, aerospace, and medical.

What's Shaping the Future of the Security and Safety Services Industry?

Favorable Trends: With hacking activities rising across the globe, the demand for internet-security products and services like firewalls and unified threat management is on the rise. Another trend of ensuring the safety and security of infrastructure at offices, factories and residential buildings is aiding many industry players. People preferring to buy products through e-commerce platforms as well as strengthening residential businesses in the Americas are other tailwinds. The industry’s revenues totaled $7.9 billion in 2020, while its top line stood at $1.8 billion in the quarter ended March 2021.

Pandemic & Other Concerns: Activities of the industry players were impacted by the pandemic, some positively and some adversely, in 2020. The second wave has also raised concerns for many industry players as the prolongation of COVID-restrictions might hurt renovation projects, constructions and spending on commercial buildings. Johnson Controls might face headwinds in the commercial HVAC (heating, ventilation and air conditioning) market due to the pandemic-led woes. The industry players are expected to be hurt by headwinds related to international businesses, stiff competition, and high costs and expenses.

High Leverage: Changing customer needs require constant product upgradation as well as innovation from industry players, resulting in huge investments. Players often make acquisitions to broaden product portfolio, geographical reach and technological capabilities. Such massive investments often leave companies with a highly leveraged balance sheet. The industry’s long-term debt was $4.9 billion at the end of first-quarter 2021.

Zacks Industry Rank Points Toward Bleak Prospects

The Zacks Security and Safety Services industry is a 22-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #175, which places it in the bottom 30% 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 weak 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 bottom 50% of the Zacks-ranked industries is a result of gloomy earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry’s earnings estimates for 2021 moved down 0.70% year over year.

Before we discuss a few stocks from the industry, let’s have a look at the industry’s shareholder returns and current valuation first.

Industry Outperforms Sector & S&P 500

The Zacks Security and Safety Services industry has outperformed its sector and the S&P 500 in the past year. The industry has gained 52.5% compared with the sector’s rise of 39.4% and the S&P 500’s rally of 36.2%.

One-Year Price Performance

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Security and Safety Services Industry's Valuation

P/E ratio is commonly used for valuing security and safety services stocks.

The industry’s forward 12-month P/E ratio is 22.54. This clearly shows that the industry is trading above the S&P 500’s forward 12-month P/E ratio of 21.77 and the sector’s 20.84.

Over the past five years, the industry has traded at the highest level of 22.54X forward 12-month P/E and the lowest level of 11.09X. The median level over the same period was 15.70X.

Security and Safety Services Industry’s Valuation Versus Sector

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Security and Safety Services Industry’s Valuation Versus S&P 500

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4 Security and Safety Services Stocks Worth A Watch

Below we have discussed four stocks from the industry, carrying either a Zacks Rank #2 (Buy) or a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Johnson Controls: The diversified technology company engages in providing efficient energy solutions, building systems and integrated infrastructure. Its focus on product launches, existing solid offerings, the digital platform and acquisitions are likely to benefit the company. However, weak construction demand in China and North America is expected to be concerning. The company presently carries a Zacks Rank #3.

Shares of this Cork, Ireland-based company have rallied 90.6% in the past year. It reported better-than-anticipated results in the last four quarters, with an earnings surprise of 12.93%, on average. The company’s earnings estimates have moved 1.1% north for fiscal 2021 (ending September 2021) and increased 2.9% for fiscal 2022 (ending September 2022) in the past 60 days.

Price and Consensus: JCI

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Allegion: The company engages in providing security products and solutions meant to be used for domestic and business purposes. Buyouts, the strengthening electronic product business, cost-control measures and productivity initiatives are expected to benefit the company. However, weakness in the non-residential business is expected to hurt. The company presently carries a Zacks Rank #3.

Shares of this Dublin, Ireland-based company have rallied 34.6% in the past year. It reported better-than-anticipated results in the last four quarters, with an earnings surprise of 25.16%, on average. The company’s earnings estimates have moved 0.4% north for 2021 and 2.9% for 2022 in the past 60 days.



Price and Consensus: ALLE

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Brady: The company provides solutions that help in protecting places, people and products. Its offerings, including safety devices, signs, high-performance labels and software, are used in medical, construction, manufacturing, electronics and other end-markets. Diversified business structure, improving market conditions, buyout activities, and investments in research and marketing are anticipated to be beneficial. However, high costs and operating expenses might be concerning. The company presently carries a Zacks Rank #2.

This Milwaukee, WI-based company’s shares have appreciated 12.4% in the past year. It surpassed estimates in two of the last four quarters, while lagging estimates in others. Average earnings surprise is 1.58%. In the past 60 days, the company’s earnings estimates have been unchanged for fiscal 2021 (ending July 2021) and have moved up 7.3% for fiscal 2022 (ending July 2022).

Price and Consensus: BRC

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Ituran Location and Control: The company engages in providing value-added location-based services. Its offering includes vehicle-related management & control services, fleet management, mobile asset location, stolen vehicle recovery, and personal security for the insurance and retail industry. It stands to gain from strengthening subscriber base (after-market), global presence and a solid customer base. The company presently carries a Zacks Rank #2.

Shares of this Azor, Israel-based company have grown 65.2% in the past year. It reported better-than-anticipated results in three of the preceding four quarters and missed estimates once. The earnings surprise for the trailing four quarters was 40.38%, on average. In the past 60 days, the company’s earnings estimates have moved 1.3% north for 2021 and increased 10.4% for 2022.

Price and Consensus: ITRN

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