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Allegion to Benefit From Strong End Markets, Risks Remain

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On Sep 10, we issued an updated research report on Allegion plc (ALLE - Free Report) .

In the past six months, this Zacks Rank #3 (Hold) stock has yielded a return of 10.6% compared with the industry’s growth of 6.6%.

Existing Scenario

Allegion has been benefiting from strength in its non-residential business, led by institutional markets in the Americas and acquisition gains. As a matter of fact, the company expects these tailwinds to continue bolstering its revenues in the rest of 2019. It believes that healthy demand for its electronic products, led by Simons Voss and Interflex businesses along with improvement in the residential business will benefit the top line. Notably, for 2019, the company expects revenue growth on both reported and organic basis in the band of 4.5-5.5%.

Also, Allegion believes that collaborations with industry partners, greater operational efficacy and its pricing actions will bolster the bottom line. For 2019, it anticipates adjusted earnings per share to be in the range of $4.80 to $4.90 compared with previously estimated $4.75 to $4.90.

Moreover, the company remains committed to rewarding shareholders handsomely through dividend payments and share repurchase programs. Notably, in the second quarter of 2019, the company repurchased shares worth approximately $69.8 million. It is worth noting that the quarterly dividend rate was hiked 29% in February 2019. Such diligent capital deployment strategies boost shareholders' wealth.

However, the company has been dealing with rising costs of sales over the past few quarters. For instance, in the first and second quarter of 2019, the company's cost of sales jumped 6.4% and 2.9%, respectively, on a year-over-year basis. Notably, high material cost is escalating its aggregate costs of late. Rising costs, if unchecked, will continue to dent Allegion's margins in the quarters ahead.

In addition, analysts have become increasingly bearish on the company over the past couple of months. Consequently, the Zacks Consensus Estimate for 2019 earnings has trended down from $4.84 to $4.83.

Key Picks

Some better-ranked stocks from Zacks Industrial Products sector are Cintas Corporation (CTAS - Free Report) , DXP Enterprises, Inc. (DXPE - Free Report) and Graham Corporation (GHM - Free Report) . All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cintas delivered a positive average earnings surprise of 6.27% in the trailing four quarters.

DXP Enterprises pulled off a positive average earnings surprise of 18.06% in the trailing four quarters.

Graham’s earnings surprise in the last reported quarter was 100.00%.

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