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Security and Safety Services Stocks' Near-Term Prospects Dim
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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 other end markets.
Here are the three key industry themes:
Demand for security and safety services is on the rise across the globe on account of increase in industrial activities and the consequent need to deal with fraudulent activities. Developed nations like the United States are attractive markets for such service providers, thanks to growing awareness about safety and security, increased adoption of sophisticated technologies, infrastructure development and rising construction activities. Developing nations hold solid growth opportunities for the industry as well.
Rise in commodity prices along with increase in other expenses is a concerning factor for industry players. Also, of late, difficulty in sourcing labor across various end markets, particularly in construction, has been a major barrier to growth. In addition, tariffs imposed by the U.S. administration on steel and aluminum, and against Chinese imported products have been inflating manufacturing costs and creating uncertainties across the supply chain. As a matter of fact, the ongoing trade disputes with foreign nations, particularly China, have been impacting international demand for products and services for major players in the industry.
The security and safety services providers significantly invest in innovation to cater to changing customer demand. In addition, the companies often make acquisitions to broaden product portfolio and expand business in overseas markets. However, with such massive investments, companies often end up with a highly leveraged balance sheet.
Zacks Industry Rank Indicates Dull 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 #187, which places it in the bottom 27% 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 positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping less faith in this group's earnings growth potential. Notably, the industry’s earnings estimates for the current year are down roughly 32.8% from the year-ago period.
Despite the grim outlook, we present a few stocks that have strong earnings growth prospects. Before we discuss the stocks, it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500, Outshines Sector
The Zacks Security and Safety Services industry has lagged the S&P 500 but outperformed the broader Industrial Products sector over the past year.
The industry has rallied 0.9% during this period compared with the S&P 500’s increase of 1.8%. The Zacks Industrial Products sector has declined 6.4% in the said time frame.
One-Year Price Performance Versus S&P 500
One-Year Price Performance Versus Sector
Security and Safety Services Industry’s Valuation
Price/Earnings (P/E) ratio is commonly used for valuing security and safety services stocks.
The industry’s forward 12-month P/E ratio is 16.53. This clearly shows that the industry is trading above the sector’s forward 12-month P/E ratio of 15.03 but below the S&P 500’s 16.62.
Over the past five years, the industry has traded at the highest level of 28.22x forward 12-month earnings and lowest level of 10.27x. The median level, over the same period, was 16.69X.
Security and Safety Services Industry’s Valuation Versus Sector
Security and Safety Services Industry’s Valuation Versus S&P 500
Bottom Line
On account of the prevalent headwinds, we believe that near-term investment in industry players may not be prudent. The majority of the stocks within this 22-stock industry currently carry a Zacks Rank #3 (Hold) or 4 (Sell) or 5 (Strong Sell). Despite the industry’s poor rank, we present some stocks from the industry, which are likely to offer good returns particularly in difficult times.
A brief discussion on the chosen stocks is provided below:
Napco Security Technologies, Inc. (NSSC - Free Report) : The stock of this Amityville, NY-based company has surged 94.6% over the past six months. The Zacks Consensus Estimate for current-year earnings has moved up 8.5% to 64 cents per share over the past 90 days. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: NSSC
Pointer Telocation Ltd. : The stock of this Rosh Haayin, Israel-based company has gained 23.1% in the past six months. The Zacks Consensus Estimate for its 2019 earnings per share has risen 2.4% to $1.28 per share in the past 90 days. The stock currently has a Zacks Rank #2.
Price and Consensus: PNTR
Johnson Controls International plc (JCI - Free Report) : This Cork, Ireland-based company currently carries a Zacks Rank #2. Over the past six months, the stock has gained nearly 19%. The Zacks Consensus Estimate for current-quarter earnings has moved up 8.5% to 64 cents per share over the past 90 days. However, the estimate for its 2019 earnings per share has decreased 2% to $1.93 per share in the past 90 days.
Price and Consensus: JCI
Fortune Brands Home & Security, Inc. : This Deerfield, IL-based company currently carries a Zacks Rank #3. Over the past six months, the stock has gained nearly 25.1%. The Zacks Consensus Estimate for earnings has moved up 0.8% to $3.66 per share for 2019 over the past 90 days.
Price and Consensus: FBHS
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Security and Safety Services Stocks' Near-Term Prospects Dim
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 other end markets.
Here are the three key industry themes:
Zacks Industry Rank Indicates Dull 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 #187, which places it in the bottom 27% 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 positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping less faith in this group's earnings growth potential. Notably, the industry’s earnings estimates for the current year are down roughly 32.8% from the year-ago period.
Despite the grim outlook, we present a few stocks that have strong earnings growth prospects. Before we discuss the stocks, it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500, Outshines Sector
The Zacks Security and Safety Services industry has lagged the S&P 500 but outperformed the broader Industrial Products sector over the past year.
The industry has rallied 0.9% during this period compared with the S&P 500’s increase of 1.8%. The Zacks Industrial Products sector has declined 6.4% in the said time frame.
One-Year Price Performance Versus S&P 500
One-Year Price Performance Versus Sector
Security and Safety Services Industry’s Valuation
Price/Earnings (P/E) ratio is commonly used for valuing security and safety services stocks.
The industry’s forward 12-month P/E ratio is 16.53. This clearly shows that the industry is trading above the sector’s forward 12-month P/E ratio of 15.03 but below the S&P 500’s 16.62.
Over the past five years, the industry has traded at the highest level of 28.22x forward 12-month earnings and lowest level of 10.27x. The median level, over the same period, was 16.69X.
Security and Safety Services Industry’s Valuation Versus Sector
Security and Safety Services Industry’s Valuation Versus S&P 500
Bottom Line
On account of the prevalent headwinds, we believe that near-term investment in industry players may not be prudent. The majority of the stocks within this 22-stock industry currently carry a Zacks Rank #3 (Hold) or 4 (Sell) or 5 (Strong Sell). Despite the industry’s poor rank, we present some stocks from the industry, which are likely to offer good returns particularly in difficult times.
A brief discussion on the chosen stocks is provided below:
Napco Security Technologies, Inc. (NSSC - Free Report) : The stock of this Amityville, NY-based company has surged 94.6% over the past six months. The Zacks Consensus Estimate for current-year earnings has moved up 8.5% to 64 cents per share over the past 90 days. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: NSSC
Pointer Telocation Ltd. : The stock of this Rosh Haayin, Israel-based company has gained 23.1% in the past six months. The Zacks Consensus Estimate for its 2019 earnings per share has risen 2.4% to $1.28 per share in the past 90 days. The stock currently has a Zacks Rank #2.
Price and Consensus: PNTR
Johnson Controls International plc (JCI - Free Report) : This Cork, Ireland-based company currently carries a Zacks Rank #2. Over the past six months, the stock has gained nearly 19%. The Zacks Consensus Estimate for current-quarter earnings has moved up 8.5% to 64 cents per share over the past 90 days. However, the estimate for its 2019 earnings per share has decreased 2% to $1.93 per share in the past 90 days.
Price and Consensus: JCI
Fortune Brands Home & Security, Inc. : This Deerfield, IL-based company currently carries a Zacks Rank #3. Over the past six months, the stock has gained nearly 25.1%. The Zacks Consensus Estimate for earnings has moved up 0.8% to $3.66 per share for 2019 over the past 90 days.
Price and Consensus: FBHS
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
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