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Allegion plc (ALLE - Free Report) is poised to benefit from strengthening demand in end markets and effective pricing in the quarter ahead. The company expects revenues to increase 6-7.5% year over year for 2022, with organic growth of 7-8.5%. It predicts its revenues, margins and earnings to improve on a sequential basis throughout this year. Allegion’s healthy operational performance is anticipated to boost earnings by 91 cents to $1.06 per share.
The company intends to strengthen and expand its businesses through the addition of assets. Its acquisition of Yonomi (January 2021) strengthened its offerings of smart-home solutions. The buyout of certain assets of Astrum Benelux B.V. and WorkforceIT B.V. (July 2021) enhanced its Interflex unit’s cloud and mobile solutions, along with its software-as-a-service capabilities. Also, its efforts to update its products and develop new ones per the changing market sentiments bode well.
Allegion’s ability to generate healthy cash flows allows it to effectively deploy capital for repurchasing shares and paying out dividend. For instance, in 2021, the company generated an operating cash flow of $488.6 million and a free cash flow of $443.2 million. In the year, it utilized $412.8 million for repurchasing shares and $129 million for paying out dividends. Also, in February 2022, it hiked the quarterly dividend rate by 14%.
However, the company has been experiencing escalating costs and expenses of late. In the fourth quarter, the cost of sales increased 3.8%, and selling and administrative expenses expanded 6.1%. In the quarter, its gross margin was down 360 basis points (bps) and the operating margin contracted 610 bps on a year-over-year basis. The results suffered from labor, material, packaging and freight-related cost inflation. Shortages of electronic chips, supply-chain woes and cost inflation might affect its near-term performance.
Allegion’s high-debt profile poses a concern. Its long-term debt balance was $1,429.5 million at the end of fourth-quarter 2021, reflecting an increase of 19.9% sequentially. Any further increase in debt levels can raise the company’s financial obligations.
Image Source: Zacks Investment Research
In the past three months, the Zacks Rank #3 (Hold) stock has lost 7.1% compared with the industry’s decline of 13.1%.
Key Picks
Some better-ranked stocks from the Zacks Industrial Products sector are discussed below.
In the past 30 days, Franklin Electric’s earnings estimates have been stable for 2022. FELE’s shares have lost 6.4% in the past three months.
Standex International Corporation (SXI - Free Report) presently has a Zacks Rank #2. Its earnings surprise in the last four quarters was 5.85%, on average.
In the past 30 days, Standex’s earnings estimates have been stable for fiscal 2022 (ending June 2022). SXI’s shares have gained 0.5% in the past three months.
Ferguson plc (FERG - Free Report) presently carries a Zacks Rank #2. Its earnings surprise in the last reported quarter was 11.56%.
Ferguson’s earnings estimates increased 4.1% for fiscal 2022 (ending July 2022) in the past 30 days. FERG’s shares have lost 15.9% in the past three months.
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Allegion (ALLE) Displays Solid Prospects, Headwinds Persist
Allegion plc (ALLE - Free Report) is poised to benefit from strengthening demand in end markets and effective pricing in the quarter ahead. The company expects revenues to increase 6-7.5% year over year for 2022, with organic growth of 7-8.5%. It predicts its revenues, margins and earnings to improve on a sequential basis throughout this year. Allegion’s healthy operational performance is anticipated to boost earnings by 91 cents to $1.06 per share.
The company intends to strengthen and expand its businesses through the addition of assets. Its acquisition of Yonomi (January 2021) strengthened its offerings of smart-home solutions. The buyout of certain assets of Astrum Benelux B.V. and WorkforceIT B.V. (July 2021) enhanced its Interflex unit’s cloud and mobile solutions, along with its software-as-a-service capabilities. Also, its efforts to update its products and develop new ones per the changing market sentiments bode well.
Allegion’s ability to generate healthy cash flows allows it to effectively deploy capital for repurchasing shares and paying out dividend. For instance, in 2021, the company generated an operating cash flow of $488.6 million and a free cash flow of $443.2 million. In the year, it utilized $412.8 million for repurchasing shares and $129 million for paying out dividends. Also, in February 2022, it hiked the quarterly dividend rate by 14%.
However, the company has been experiencing escalating costs and expenses of late. In the fourth quarter, the cost of sales increased 3.8%, and selling and administrative expenses expanded 6.1%. In the quarter, its gross margin was down 360 basis points (bps) and the operating margin contracted 610 bps on a year-over-year basis. The results suffered from labor, material, packaging and freight-related cost inflation. Shortages of electronic chips, supply-chain woes and cost inflation might affect its near-term performance.
Allegion’s high-debt profile poses a concern. Its long-term debt balance was $1,429.5 million at the end of fourth-quarter 2021, reflecting an increase of 19.9% sequentially. Any further increase in debt levels can raise the company’s financial obligations.
Image Source: Zacks Investment Research
In the past three months, the Zacks Rank #3 (Hold) stock has lost 7.1% compared with the industry’s decline of 13.1%.
Key Picks
Some better-ranked stocks from the Zacks Industrial Products sector are discussed below.
Franklin Electric Co., Inc. (FELE - Free Report) presently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Its earnings surprise in the last four quarters was 17.4%, on average.
In the past 30 days, Franklin Electric’s earnings estimates have been stable for 2022. FELE’s shares have lost 6.4% in the past three months.
Standex International Corporation (SXI - Free Report) presently has a Zacks Rank #2. Its earnings surprise in the last four quarters was 5.85%, on average.
In the past 30 days, Standex’s earnings estimates have been stable for fiscal 2022 (ending June 2022). SXI’s shares have gained 0.5% in the past three months.
Ferguson plc (FERG - Free Report) presently carries a Zacks Rank #2. Its earnings surprise in the last reported quarter was 11.56%.
Ferguson’s earnings estimates increased 4.1% for fiscal 2022 (ending July 2022) in the past 30 days. FERG’s shares have lost 15.9% in the past three months.