Allegion plc (ALLE - Free Report) has failed to impress investors with its recent operational performance, owing to difficult end-market conditions amid the coronavirus outbreak and other challenges, which are expected to adversely impact its earnings.
The Zacks Rank #4 (Sell) company has a market capitalization of $9.1 billion. Year to date, it has lost 20.8% compared with the industry’s decline of 2.5%.
Let’s delve into the factors that might continue to take a toll on the firm.
Weak End-Markets: In the quarters ahead, a soft demand environment across all regions on account of the pandemic and continued weakness across residential markets, particularly in China and Australia are likely to have a bearing on Allegion’s top-line performance. Also, it expects business divesture in Colombia and Turkey to hurt results. For 2020, the company anticipates witnessing year-over-year decline in overall revenues by 9-10% on a reported basis and 8-9% on an organic basis.
High Debt Level: The company’s high-debt profile also poses a concern. For instance, in the last six years (2014-2019), its long-term debt rose 2.7% (CAGR). Notably, the metric was $1,428.5 million at the end of the second quarter of 2020, reflecting a marginal increase sequentially. Also, the company’s weakening ability to address financial obligations are concerning. Exiting the second quarter, its times interest earned was 7.4X compared with 8.1X at the end of the previous quarter.
Forex Woes: Given its strong presence in international markets, Allegion is exposed to unfavorable foreign currency movements. For instance, in the first and second quarters of 2020, foreign exchange headwinds hurt its top-line performance by 0.9% and 0.6%, respectively. A stronger U.S. dollar might continue to depress its overseas business results in the quarters ahead.
Other Woes: Though the company’s investments for product development, channel strategies and demand creation bode well for the long run, it adversely impacts short-term earnings. For 2020, the company expects incremental investments to adversely impact its earnings by 5 cents.
Stocks to Consider
Some better-ranked stocks from the same space are Johnson Controls International plc (JCI - Free Report) , NortonLifeLock Inc. (NLOK - Free Report) and Ituran Location and Control Ltd. (ITRN - Free Report) . All these companies carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Johnson Controls delivered a positive earnings surprise of 13.11%, on average, in the trailing four quarters.
NortonLifeLock delivered a positive earnings surprise of 59.96%, on average, in the trailing four quarters.
Ituran delivered a positive earnings surprise of 15.61%, on average, in the trailing four quarters.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>