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Allegion (ALLE) Exhibits Solid Prospects, Headwinds Persist

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Allegion plc (ALLE - Free Report) has been benefiting from solid momentum across its residential businesses, backed by strength across the new home construction and retail end markets. Also, the company has been witnessing improvement in demand across home builder markets and point-of-sales in the e-commerce channels. Moreover, it expects its electronic products business to be a long-term growth driver, backed by a solid product portfolio, supply chain strength and a large customer base. Allegion expects overall revenues for 2021 to grow 2-3% on organic basis.

Also, the company’s pricing and productivity initiatives, along with its restructuring and cost saving measures, will act as tailwinds in the quarters ahead. Notably, its adjusted operating margin in first-quarter 2021 increased 30 basis points, on a year-over-year basis, backed by benefits from restructuring and cost reduction actions. In addition, its buyout of Yonomi (January 2021) will allow it to further develop its smart-home solutions through major brands like Schlage.

Moreover, Allegion’s shareholder-friendly policies add to its strength. In 2020 and in first-quarter 2021, it paid out dividends worth $117.3 million and $32.5 million, respectively. Moreover, it repurchased shares worth $208.8 million and $149.7 million in 2020 and in the first quarter of 2021, respectively. Further, it approved a 13% hike in the quarterly dividend rate in February 2021.

However, the company is witnessing persistently challenged demand environment across the non-residential markets in the Americas, owing to softness in new construction and discretionary project delays. Notably, in the first quarter, revenues from the company’s non-residential business were down by low-double digits percent on a year-over-year basis.

In addition, Allegion’s high-debt profile poses a concern. In the last seven years (2014-2020), its long-term debt rose 2.4% (CAGR). Notably, its long-term debt balance was $1,429.8 million at the end of the first-quarter 2021, reflecting a marginal increase sequentially. Any further increase in debt levels can raise the company’s financial obligations.

In the past three months, the Zacks Rank #3 (Hold) stock has gained 10.8% compared with the industry’s growth of 11.1%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Key Picks

Some better-ranked stocks from the same space are Brady Corporation (BRC - Free Report) , Ituran Location and Control Ltd. (ITRN - Free Report) and Johnson Controls International plc (JCI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brady delivered a trailing four-quarter positive earnings surprise of 1.58%, on average.

Ituran delivered a trailing four-quarter positive earnings surprise of 40.38%, on average.

Johnson Controls delivered a trailing four-quarter positive earnings surprise of 12.93%, on average.

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