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Can Allegion (ALLE) Pull a Surprise This Earnings Season?

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Allegion plc (ALLE - Free Report) is scheduled to release fourth-quarter 2017 results on Feb 20, before the market opens.

Last quarter, the company delivered in-line earnings. Notably, it surpassed the Zacks Consensus Estimate in two of the last four quarters with an average earnings beat of 2.48%.

Let’s see how things are shaping up prior to the upcoming quarterly release.

Factors at Play

Acquisition is an important part of the company’s growth strategy.  During the first nine months of 2017, acquisitions contributed 1.6% to revenue growth of 7%. The trend is expected to continue in the to-be-reported quarter as well. The company broadens its product portfolio and geographic footprint as well as enhances its position in strategic market segments through buyouts. The acquisition of McKenzie-based Republic Doors & Frames in January 2017 is expected to expand its product line, improve operating efficiency and expand distribution footprint.

Also, product innovation has led to an increase in demand, thereby driving revenues. Allegion continuously updates its products and develops new ones to keep up with the changing market sentiment toward electronic security products and solutions. In fact, sales of such electronic security products are growing at nearly twice the rate of their traditional mechanical counterparts. Allegion continues to focus on making incremental investments in organic growth for new product development. It is also trying to chalk out channel strategies and gain enterprise excellence to accelerate core market expansion. These initiatives are expected to contribute to fourth quarter revenues.

Out of the three reportable segments, Allegion’s Americas segment has been witnessing strong growth for quite some time now. Accounting for about 75% of total revenues, the segment’s revenues increased 4.4% in the prior quarter driven by favorable price and growth in electronics. Moreover, in the first nine months of 2017, the segment’s revenues increased 7.7%. The trend is expected to continue in the to-be-reported quarter as well.

In spite of the various investments made, the company’s margins continued to increase, expanding 60 basis points (bps) in the first nine months of 2017. Adjusted operating margin jumped 30 bps in the prior quarter owing to solid price performance, volume leverage and productivity, which offset negative impacts from unfavorable product mix, increased investments and inflation. The trend is expected to continue in the to-be-reported quarter as well.

Overall, for the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at 94 cents, reflecting a 16.1% year-over-year increase. Meanwhile, the consensus estimate for revenues is $609.7 million, implying a year-over-year rise of 7%.

Here is what our quantitative model predicts —

Allegion has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — which increases the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Allegion is +0.53%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Allegion carries a Zacks Rank #3, which increases the predictive power of ESP.

Meanwhile, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Allegion PLC Price and EPS Surprise

Other Stocks to Consider

Here are some companies in the Zacks Industrial Products sector that have the right combination of elements to post an earnings beat this quarter:

Lincoln Electric Holdings, Inc. (LECO - Free Report) , with an Earnings ESP of +9.09% and a Zacks Rank #2.

Brady Corporation (BRC - Free Report) , with an Earnings ESP of +0.57% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lawson Products, Inc. (LAWS - Free Report) , with an Earnings ESP of +56.25% and a Zacks Rank #2.

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