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4 Security Services Stocks to Gain Amid Industry Challenges
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Players in the Zacks Security and Safety Services industry are benefiting from the solid demand for products and solutions that ensure infrastructure safety at residential complexes, offices and factories. The increasing need to deal with ever-increasing fraudulent activities is supporting the industry.
The industry participants have also been gaining from strong online demand. The pandemic’s impacts on new construction, difficulty in sourcing labor and inflation in raw materials and other expenses remain concerns. Johnson Controls International plc (JCI - Free Report) , KnowBe4, Inc. , Verra Mobility Corporation (VRRM - Free Report) and Wrap Technologies, Inc. (WRAP - Free Report) are a few stocks with solid prospects.
About the Industry
The Zacks Security and Safety Services industry comprises companies that provide sophisticated and interactive security solutions and related services 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 that 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 industry participants also 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: The industry has been benefiting from the growing demand for Internet-security products and services like firewalls and unified threat management as hacking activities are on the rise across the globe. The increasing requirement to ensure the safety and security of infrastructure at offices, factories and residential buildings is also aiding the industry participants. People preferring to purchase products through e-commerce platforms, particularly amid the pandemic, has also opened up opportunities for industry players. The industry’s revenues totaled $7.6 billion in 2021, while its top line was $1.9 billion in the quarter ended December 2021.
Pandemic & Other Concerns: The possibility of a fourth 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. Supply-chain disruptions and inflation in raw materials and other expenses have also been weighing on the margins and profitability of several industry participants. This apart, headwinds related to international businesses, stiff competition and shortage of skilled workers in the United States weigh on the industry participants.
High Leverage: Changing customer needs require constant product upgrades and innovation from industry participants, resulting in huge investments. Players often make acquisitions to broaden product portfolios, enhance technological capabilities and extend geographical reach. 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 fourth-quarter 2021.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Security and Safety Services industry is a 24-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #174, which places it in the bottom 31% 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 outperform 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 2022 moved down 12.4% over the past 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 But Underperforms S&P 500
The Zacks Security and Safety Services industry has outperformed its sector but underperformed the S&P 500 in the past year. The industry has declined 4.5% against the S&P 500’s rally of 12.8% and the sector’s fall of 5%.
One-Year Price Performance
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 18.82. This clearly shows that the industry is trading below the S&P 500’s forward 12-month P/E ratio of 20.17 and above the sector’s 17.63.
Over the past five years, the industry has traded at the highest level of 24.59X forward 12-month P/E and the lowest level of 11.02X. The median level over the same period was 16.92X.
Security and Safety Services Industry’s Valuation Versus Sector
Security and Safety Services Industry’s Valuation Versus S&P 500
4 Security and Safety Services Stocks to Focus On
Below we discuss four stocks from the industry that have solid growth opportunities. The stocks either sport a Zacks Rank #1 (Strong Buy) or carries a Zacks Rank #2 (Buy) or a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Johnson Controls: The diversified technology company provides efficient energy solutions, building systems and integrated infrastructure. The company stands to benefit from its focus on product launches, existing solid offerings, digital platforms and acquired assets in the quarters ahead. However, high capital expenditures and rising debt levels remain concerns. Johnson Controls presently carries a Zacks Rank #2.
Shares of this Cork, Ireland-based company have gained 8.5% in the past year. It reported better-than-anticipated results thrice in the last four quarters, with the earnings surprise being 2.3%, on average. JCI’s earnings estimates have been stable for fiscal 2022 (ending September 2022) and moved 1% north for fiscal 2023 (ending September 2023) in the past 60 days.
Price and Consensus: JCI
KnowBe4: The company is engaged in providing security awareness training and simulated phishing platform. The company’s security awareness platform is used across organizations for assessing, monitoring and reducing the cybersecurity threat of social engineering attacks. KnowBe4 is poised to benefit from improving end-market conditions, acquired assets and healthy free cash flow. However, rising expenses and high costs related to integration activities for acquired assets are expected to hurt its short-term earnings. The company currently carries a Zacks Rank #3.
Although shares of this Clearwater, FL-based company have lost 2.1% in the past year, it has gained 26.5% in the past month. KNBE reported better-than-anticipated results thrice in the last four quarters, with the earnings surprise being 250%, on average. The company’s earnings estimates have increased 36.4% and 8.7% for 2022 and 2023, respectively, in the past 60 days.
Price and Consensus: KNBE
Verra Mobility: The company engages in providing smart mobility technology solutions and services in the United States, Europe and Canada. The company’s automated safety, toll and violations management, and title and registration solutions are used across municipalities, counties, law enforcement agencies and other sectors. Verra Mobility is poised to gain from strengthening end markets, wide geographical presence and a solid customer base. The company presently flaunts a Zacks Rank #1.
Shares of this Mesa, AZ-based company have jumped 12.7% in the past year. In the trailing four quarters, VRRM’s earnings surprise was 5.96%, on average. In the past 60 days, the company’s earnings estimates have moved 16.7% north for 2022 and increased 12.5% for 2023.
Price and Consensus: VRRM
Wrap Technologies: This Tempe, AZ-based public safety technology and services company is engaged in providing policing solutions to law enforcement and security personnel. Strengthening demand for products and solutions across end markets and its focus on product launch are anticipated to drive its performance in the quarters ahead. However, supply chain headwinds and cost inflation are likely to hurt its near-term performance. WRAP presently carries a Zacks Rank #2.
Although the company’s shares have lost 46.2% in the past year, it has recovered 39.6% in the past month. Its earnings surpassed estimates by 13.3% in the last reported quarter. In the past 60 days, the company’s earnings estimates have increased 8.5% and 45.5% for 2022 and 2023, respectively.
Price and Consensus: WRAP
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4 Security Services Stocks to Gain Amid Industry Challenges
Players in the Zacks Security and Safety Services industry are benefiting from the solid demand for products and solutions that ensure infrastructure safety at residential complexes, offices and factories. The increasing need to deal with ever-increasing fraudulent activities is supporting the industry.
The industry participants have also been gaining from strong online demand. The pandemic’s impacts on new construction, difficulty in sourcing labor and inflation in raw materials and other expenses remain concerns. Johnson Controls International plc (JCI - Free Report) , KnowBe4, Inc. , Verra Mobility Corporation (VRRM - Free Report) and Wrap Technologies, Inc. (WRAP - Free Report) are a few stocks with solid prospects.
About the Industry
The Zacks Security and Safety Services industry comprises companies that provide sophisticated and interactive security solutions and related services 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 that 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 industry participants also 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: The industry has been benefiting from the growing demand for Internet-security products and services like firewalls and unified threat management as hacking activities are on the rise across the globe. The increasing requirement to ensure the safety and security of infrastructure at offices, factories and residential buildings is also aiding the industry participants. People preferring to purchase products through e-commerce platforms, particularly amid the pandemic, has also opened up opportunities for industry players. The industry’s revenues totaled $7.6 billion in 2021, while its top line was $1.9 billion in the quarter ended December 2021.
Pandemic & Other Concerns: The possibility of a fourth 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. Supply-chain disruptions and inflation in raw materials and other expenses have also been weighing on the margins and profitability of several industry participants. This apart, headwinds related to international businesses, stiff competition and shortage of skilled workers in the United States weigh on the industry participants.
High Leverage: Changing customer needs require constant product upgrades and innovation from industry participants, resulting in huge investments. Players often make acquisitions to broaden product portfolios, enhance technological capabilities and extend geographical reach. 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 fourth-quarter 2021.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Security and Safety Services industry is a 24-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #174, which places it in the bottom 31% 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 outperform 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 2022 moved down 12.4% over the past 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 But Underperforms S&P 500
The Zacks Security and Safety Services industry has outperformed its sector but underperformed the S&P 500 in the past year. The industry has declined 4.5% against the S&P 500’s rally of 12.8% and the sector’s fall of 5%.
One-Year Price Performance
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 18.82. This clearly shows that the industry is trading below the S&P 500’s forward 12-month P/E ratio of 20.17 and above the sector’s 17.63.
Over the past five years, the industry has traded at the highest level of 24.59X forward 12-month P/E and the lowest level of 11.02X. The median level over the same period was 16.92X.
Security and Safety Services Industry’s Valuation Versus Sector
Security and Safety Services Industry’s Valuation Versus S&P 500
4 Security and Safety Services Stocks to Focus On
Below we discuss four stocks from the industry that have solid growth opportunities. The stocks either sport a Zacks Rank #1 (Strong Buy) or carries a Zacks Rank #2 (Buy) or a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Johnson Controls: The diversified technology company provides efficient energy solutions, building systems and integrated infrastructure. The company stands to benefit from its focus on product launches, existing solid offerings, digital platforms and acquired assets in the quarters ahead. However, high capital expenditures and rising debt levels remain concerns. Johnson Controls presently carries a Zacks Rank #2.
Shares of this Cork, Ireland-based company have gained 8.5% in the past year. It reported better-than-anticipated results thrice in the last four quarters, with the earnings surprise being 2.3%, on average. JCI’s earnings estimates have been stable for fiscal 2022 (ending September 2022) and moved 1% north for fiscal 2023 (ending September 2023) in the past 60 days.
Price and Consensus: JCI
KnowBe4: The company is engaged in providing security awareness training and simulated phishing platform. The company’s security awareness platform is used across organizations for assessing, monitoring and reducing the cybersecurity threat of social engineering attacks. KnowBe4 is poised to benefit from improving end-market conditions, acquired assets and healthy free cash flow. However, rising expenses and high costs related to integration activities for acquired assets are expected to hurt its short-term earnings. The company currently carries a Zacks Rank #3.
Although shares of this Clearwater, FL-based company have lost 2.1% in the past year, it has gained 26.5% in the past month. KNBE reported better-than-anticipated results thrice in the last four quarters, with the earnings surprise being 250%, on average. The company’s earnings estimates have increased 36.4% and 8.7% for 2022 and 2023, respectively, in the past 60 days.
Price and Consensus: KNBE
Verra Mobility: The company engages in providing smart mobility technology solutions and services in the United States, Europe and Canada. The company’s automated safety, toll and violations management, and title and registration solutions are used across municipalities, counties, law enforcement agencies and other sectors. Verra Mobility is poised to gain from strengthening end markets, wide geographical presence and a solid customer base. The company presently flaunts a Zacks Rank #1.
Shares of this Mesa, AZ-based company have jumped 12.7% in the past year. In the trailing four quarters, VRRM’s earnings surprise was 5.96%, on average. In the past 60 days, the company’s earnings estimates have moved 16.7% north for 2022 and increased 12.5% for 2023.
Price and Consensus: VRRM
Wrap Technologies: This Tempe, AZ-based public safety technology and services company is engaged in providing policing solutions to law enforcement and security personnel. Strengthening demand for products and solutions across end markets and its focus on product launch are anticipated to drive its performance in the quarters ahead. However, supply chain headwinds and cost inflation are likely to hurt its near-term performance. WRAP presently carries a Zacks Rank #2.
Although the company’s shares have lost 46.2% in the past year, it has recovered 39.6% in the past month. Its earnings surpassed estimates by 13.3% in the last reported quarter. In the past 60 days, the company’s earnings estimates have increased 8.5% and 45.5% for 2022 and 2023, respectively.
Price and Consensus: WRAP