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Allegion (ALLE) Declines 19.9% YTD: What's Hurting the Stock?

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Shares of Allegion plc (ALLE - Free Report) have declined since the beginning of this year. The decline in share price primarily reflects the negative impacts of the coronavirus pandemic on the company’s operational performance.

Notably, Allegion belongs to the Zacks Security and Safety Services industry, which, in turn, comes under the Zacks Industrial Products sector.

Year to date, the company’s shares have lost 19.9% compared with the industry’s decline of 16% and the sector’s fall of 14.8%. Notably, the S&P 500 has declined 5.4% during the same period.

 


 

Allegion currently carries a Zacks Rank #4 (Sell).

Factors Affecting the Company

The coronavirus outbreak has been impacting Allegion’s operations. For instance, in the first quarter, the company’s business operations suffered temporary shutdowns in several countries on account of the coronavirus outbreak. Moving ahead, it anticipates experiencing periodic work shutdowns at some of its operations, owing to lower customer demand and material shortages. This is likely to affect the company’s top-line performance in the quarters ahead. Also, it has withdrawn its previously issued revenue and earnings guidance for 2020 on uncertainties regarding the impacts of the outbreak on financial and operating results.

Also, the company has been witnessing escalating costs of sales and expenses over time. Notably, in the last five years (2015-2019), its cost of sales increased 6% (CAGR). Also, in the first quarter of 2020, the metric recorded an increase of 0.9% on a year-over-year basis. In addition, in both fourth-quarter 2019 and first-quarter 2020, incremental investments incurred by the company had a negative impact of 2 cents on earnings. If not checked, rising costs and expenses might continue to hurt Allegion's margins, going forward.

Moreover, a highly leveraged balance sheet can be concerning for the company. Notably, its long-term debt at the end of the first-quarter 2020 remained high at $1,428 million. Its total debt-to-total capital stood at 70% at the end of the first quarter, higher than 65.2% recorded in the previous quarter. Also, the company’s cash and cash equivalents were just $245.3 million at the end of the first quarter.

In addition, the Zacks Consensus Estimate for the company’s earnings is pegged at $3.99 for 2020 and $4.41 for 2021, marking declines of 15.6% and 16% from the respective 60-day-ago figures. The consensus estimate for second-quarter earnings has moved down 38.8% from $1.21 per share to 74 cents over the same time frame.

Stocks to Consider

Some better-ranked stocks in the sector are Applied Industrial Technologies, Inc. (AIT - Free Report) , DXP Enterprises, Inc. (DXPE - Free Report) and Graphic Packaging Holding Company (GPK - Free Report) . While Applied Industrial currently sports a Zacks Rank #1 (Strong Buy), DXP Enterprises and Graphic Packaging carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Industrial delivered a positive earnings surprise of 2.00% in the last reported quarter.

DXP Enterprises delivered a positive earnings surprise of 55.00% in the last reported quarter.

Graphic Packaging delivered a positive earnings surprise of 24.00% in the last reported quarter.

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