Allegion plc (ALLE) is a global leader in mechanical and electronic security solutions, with key brands such as CISA®, Interflex®, LCN®, Schlage®, SimonsVoss®, and Von Duprin®. Specializing in security around doors and adjacent areas, Allegion provides a diverse array of products designed to protect people and assets across homes, businesses, schools, and institutions.

Solid execution drove ALLE’s second-quarter 2024 performance, including record revenue and adjusted EPS. The security solutions provider reported second-quarter net revenues of $965.60 million, surpassing analysts’ estimate of $955.04 million. The Americas segment revenues were up 6% year-over-year (5.7% increase on an organic basis.

The organic revenue surge across the Americas segment was driven by price realization and volume growth. ALLE’s International segment revenues rose 5.2% (up 3.1% on an organic basis). Also, Allegion posted a record adjusted EPS of $1.92, above the consensus estimate of $1.84.

“Q2 revenue growth and margin expansion demonstrate the resilience of Allegion’s business model. We see stability in demand given our broad end-market exposure and specification expertise. We are accelerating capital deployment, consistently returning cash to shareholders and investing in accretive acquisitions like Krieger Specialty Products and Unicel Architectural,” said Allegion President and CEO John H. Stone.

During the second quarter of 2024, ALLE repurchased approximately 0.3 million shares for around $40 million and paid quarterly dividends of $0.48 per share or $41.80 million.

After an outstanding financial performance, Allegion raised its full-year 2024 guidance for reported revenue growth to a range of 2.5% to 3.5%. It also raised full-year adjusted EPS outlook to a range of $7.15 to $7.30. Further, the company affirmed the expected full-year available cash flow of nearly $540-$570 million.

Shares of ALLE have gained 11.7% over the past month and 12.8% over the past year to close the last trading session at $127.75.

Let's look at factors that could influence ALLE’s performance in the upcoming months.

Recent Strategic Developments

On June 25, Allegion US introduced the Von Duprim 70 Series Exit Devices. The new product line blends the quality and trust of Von Duprin with a mid-range price point, making it an excellent option for various applications, such as warehouses, industrial sites, offices, multifamily buildings, retail, and hospitality spaces.

This new product line exemplifies ALLE’s commitment to continuous innovation and offering durable, high-performance solutions for a diverse range of applications.

On June 11, Allegion acquired Quebec, Canada-based Unicel Architectural Corp. Unicel Architectural is a leading manufacturer of advanced glass, timber, and aluminum building solutions that support privacy, safety, energy efficiency, and sustainability. This acquisition would strengthen ALLE’s portfolio of solutions and expand its specification capabilities.

Also, on June 4, ALLE, through one of its subsidiaries, acquired Krieger Specialty Products LLC. Krieger is a prominent U.S. manufacturer of high-performance special-purpose doors and windows for industrial, commercial, and institutional markets. It will operate as part of the Allegion Americas segment, led by Allegion Senior Vice President Dave Ilardi.

“This acquisition broadens our portfolio, while strengthening our manufacturing presence regionally and bringing together two strong workplace cultures," stated Ilardi. "Krieger’s high-quality specialty products will add to the breadth of Allegion’s solutions, while our specification and institutional market expertise will fuel demand creation and growth for Krieger.

Robust Financials

For the second quarter that ended June 30, 2024, ALLE’s net revenues increased 5.8% year-over-year to $965.60 million. Its gross profit grew 6.6% from the year-ago value to $428.30 million. Its adjusted operating income was $228.60 million, an increase of 12.8% year-over-year.

Furthermore, the company’s reported second-quarter adjusted net earnings of $171.70 million, or $1.96 per share, up 11.4% from the prior year’s period, respectively. Allegion ended the quarter with cash and cash equivalents of $747.50 million.

Favorable Analyst Estimates

Analysts expect ALLE’s revenue for the third quarter (ending September 2024) to grow 5.4% year-over-year to $967.35 million. The consensus EPS estimate of $1.97 for the ongoing quarter indicates an improvement of 1.7% year-over-year. Moreover, the company has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year ending December 2024, Street expects ALLE’s revenue and EPS to increase 3.2% and 3.9% from the previous year to $3.77 billion and $7.23, respectively. The company’s revenue and EPS for the fiscal year 2025 are expected to grow 4% and 6.9% year-over-year to $3.92 billion and $7.73, respectively.

Solid Historical Growth

Over the past three years, ALLE’s revenue has grown at a CAGR of 8.3%, and its EBITDA has improved at a CAGR of 8.6%. The company’s net income and EPS have improved at impressive CAGRs of 5.9% and 7.4% over the same period, respectively. Further, the company’s total assets have grown at a CAGR of 16% over the same timeframe.

High Profitability

ALLE’s trailing-12-month gross profit margin of 43.77% is 39.6% higher than the 31.36% industry average. Similarly, the stock’s trailing-12-month EBIT margin of 20.72% is 107.4% higher than the industry average of 9.99%. Also, its trailing-12-month net income margin of 15.08% is 145.4% higher than the industry average of 6.14%.

Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 43.22%, 12.99%, and 11.59% are favorably compared to the industry averages of 12.64%, 7.07%, and 4.92%, respectively. Its trailing-12-month levered FCF margin of 11.44% is 74.3% higher than the industry average of 6.56%.

POWR Ratings Reflect Promise

ALLE’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ALLE has a B grade for Quality, in sync with its higher profitability than its industry peers. It also has a B grade for Momentum. The stock is trading comfortably above its 50-day and 200-day moving averages of $121.83 and $120.93, respectively, indicating an uptrend.

Within the Air/Defense Services industry, ALLE is ranked #17 out of 70 stocks.

Beyond what I have stated above, we have also given ALLE grades for Growth, Value, Sentiment, and Stability. Get all ALLE ratings here.

Bottom Line

ALLE’s second-quarter results demonstrated significant growth, with record revenues and EPS surpassing analysts' expectations. Allegion’s strategic acquisitions of Unicel Architectural and Krieger Specialty Products, combined with its innovative new product line, underscore its commitment to expanding its market presence and enhancing its portfolio.

These strategic initiatives will likely drive continued business growth and solidify Allegion’s competitive edge in the security solutions sector. Considering its robust financial performance, accelerating profitability, and optimistic growth outlook supported by a strategic focus on innovation, ALLE could be an ideal buy for substantial gains.

How Does Allegion plc (ALLE) Stack Up Against Its Peers?

While ALLE has an overall POWR Rating of B, investors could also check out these other stocks within the Air/Defense Services industry with A (Strong Buy) or B (Buy) ratings: Lockheed Martin Corp. (LMT), Willis Lease Finance Corporation (WLFC), and Elbit Systems Ltd. (ESLT).

To explore more A or B-rated air defense services stocks, click here.

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ALLE shares were unchanged in premarket trading Tuesday. Year-to-date, ALLE has gained 1.61%, versus a 9.54% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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