Back to top

Image: Bigstock

Allegion (ALLE) Faces Supply Chain & Other Woes, Lowers View

Read MoreHide Full Article

Allegion plc (ALLE - Free Report) , on Friday, provided an update on its projections for 2021. The company cited the ongoing supply-chain headwinds, shortages of components, and other prevalent woes as the primary reasons for the lowered outlook for the year.

Interestingly, the company noted that the demand for the third quarter accelerated, with healthy growth in residential and solid demand in non-residential markets.

Shares of the security products and solutions provider gained 0.22% on Friday, ending the trading session at $132.47.

Inside the Headlines

With the economic recovery worldwide, product demand is high for Allegion. The scarcity of materials and labor as well as shortages of electronic components and other parts is troubling. This, in turn, is limiting the company’s production capabilities and, hence, backlog (especially in the non-residential market) is on the rise.

Some of the counter-measures taken by Allegion are finding alternatives sources of supply, changes in product design, and altering configurations.  A steady supply of products and keeping costs under control are the company’s prime aims.

Considering the financial aspects, Allegion predicts $80-$100 million of adverse impacts on revenues in 2021 from the prevailing labor, supply chain and electronic component problems. Along with these, the headwinds are expected to influence margins. The tax rate, which is expected to be 9% for 2021 versus the 12% mentioned earlier, will be a relief.

For 2021, the company expects year-over-year revenue growth of 4-4.5%, down from the previously mentioned 7-7.5%. Organically, revenues are expected to increase 3-3.5% versus 5.5-6% stated earlier.

On a segmental basis, organic sales growth in Allegion International will align with 8.5-9.5% projected in July. The performance in the Allegion Americas segment is expected to reflect the impacts of supply delays. The company predicted year-over-year organic sales growth of 4-4.5% for this segment in July.

Adjusted earnings for the year are predicted to be $5.00-$5.10 per share, lower than the previously mentioned $5.25-$5.40. The free cash flow is expected to be $460-$480 million, down from $490-$510 million stated previously.

With solid backlogs and efforts to overcome the prevailing problems, the company expects its growth prospects and profitability to improve in 2022. Economic expansion, strength in the non-residential business and infrastructural investments will aid.

Zacks Rank, Price Performance and Earnings Estimates

With a market capitalization of $11.9 billion, Allegion currently carries a Zacks Rank #3 (Hold). Strength in non-residential and residential businesses, and international operations is beneficial. The above-mentioned prevalent headwinds are concerning.

In the past three months, the company’s shares have dipped 5.4% as compared with the industry’s decline of 5.1%.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

In the past 60 days, the company’s earnings estimates have been unchanged at $5.41 for 2021 and $5.96 for 2022. The same for the third quarter was down 2% to $1.45 in the past couple of months.

Allegion PLC Price and Consensus

 

Allegion PLC Price and Consensus

Allegion PLC price-consensus-chart | Allegion PLC Quote

Stocks to Consider

Some better-ranked stocks in the industry are Resideo Technologies, Inc. (REZI - Free Report) , SuperCom Ltd. (SPCB - Free Report) and Ituran Location and Control Ltd. (ITRN - Free Report) . While Resideo presently sports a Zacks Rank #1 (Strong Buy), both SuperCom and Ituran Location carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, bottom-line estimates for the companies have improved for the current year. Further, positive earnings surprise in the last reported quarter was 25.81% for Resideo, 80.00% for SuperCom and 18.92% for Ituran Location.

Published in