Shares of Allegion plc (ALLE - Free Report) have rallied 11.4% in the past year, against the industry’s decline of 30.3%. Moreover, its earnings estimates for 2017 and 2018 have moved up 7.1% and 9.5%, respectively, over the last 60 days, which reflects analysts’ optimism. The company’s Zacks Rank #1 (Strong Buy) indicates robust fundamentals and expectations of outperformance in the near term.
Also, Allegion’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s ROE of 126.5% compares favorably with the industry’s 8.9%, which indicates that it is more efficient in using shareholders’ funds.
Let us delve into the other factors that make this stock a lucrative pick.
Solid Growth Strategies
Acquisitions have been an important growth driver for Allegion. In 2017, acquisitions contributed 1.4% to revenue growth of 7.6%. The security products industry is highly fragmented, particularly in developing markets and involves the use of emerging products that employ latest technologies. This creates numerous opportunities to expand product portfolio, strengthen geographic footprint and enhance the position in strategic market segments through buyouts.
The company completed a number of acquisitions this year which is expected to contribute significantly to revenue growth. In March 2018, Allegion acquired manufacturer of high-performance interior and healthcare door systems — Aurora Systems. In February, the company acquired Qatar Metal Industries which is expected to expand its code-compliant products to include doors in the Middle Eastern market. In January, Allegion acquired Technical Glass Products, which is expected to enhance the company’s core product lines.
Also, Allegion’s unwavering focus on innovation and investments in product development has effective. The company consistently updates products and develops new ones to keep up with changing market sentiments toward electronic security products and solutions.
With all these growth strategies in place, Allegion makes a great pick in terms of growth investment. The company’s earnings are expected to grow 13.6%, while sales are projected at about 10.9% in 2018.
The company updated its 2018 earnings guidance which adds to the optimism. Adjusted earnings per share are expected in the range of $4.35-$4.50, reflecting an increase of 9.8% to 13.6% from adjusted 2017 EPS. The company expects full-year 2018 revenue growth in the band of 10.5-11.5% on a year-over-year basis, showing an improvement from 7.6% growth registered in 2017. Organically, revenues are expected in the 4-5% range.
Available cash flow is targeted at approximately $380-$400 million, up from $297.9 million in 2017.
Industry Outlook Positive
The Zacks Security and Safety Services industry ranks among the top 23% (62 out of 265 industries). A good industry rank indicates that the stock is likely to benefit from favorable broader factors in the immediate future.
Other Stocks to Consider
A few other top-ranked stocks in the industry include Axon Enterprise, Inc. (AAXN - Free Report) , Ituran Location and Control Ltd. (ITRN - Free Report) and Alarm.com Holdings, Inc. (ALRM - Free Report) .
Axon Enterprise sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company surpassed earnings in two of the past four quarters with an average beat of 188.3%
Ituran, a Zacks Rank #2 (Buy) stock, is expected to witness 18.1% growth in 2018 earnings.
Alarm.com, also a Zacks Rank #2 stock, is expected to see a 22.8% rise in 2018 earnings.
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