Allegion's Focus On Innovation, Americas Business Bode Well
Zacks Investment Research | May 16, 2017 09:01PM ET
On May 15, we issued an updated research report on Allegion plc (NYSE:ALLE) – leading global provider of security products and solutions for business and domestic purposes.
Allegion's strong Americas business, focus on innovation and solid footprint in emerging markets are encouraging factors. A gradually recovering U.S. housing market also bodes well.
Allegion’s recently reported first-quarter earnings surpassed the Zacks Consensus Estimate by 5.8% and also improved 19.7% from the prior-year quarter. Net revenue beat the consensus mark by 2.2% and increased 9.3% on a year-over-year basis, courtesy of strong organic growth that was slightly offset by foreign currency impact.
Upside
The company’s Americas segment accounted for 74.3% of total revenue in the first quarter. The segment registered organic growth of 10.9% in the first quarter of 2017 owing to expansion of nonresidential and residential businesses, supported by favorable end markets and continued returns on strategic investment. Strong performance in the segment led to an overall 8% organic growth for Allegion in the first quarter.
The company continuously updates its products and develops new ones to keep up with the changing market sentiment toward electronic security products and solutions. The company’s consistent focus on innovation and investments in new product development helps it to increase the vitality index (an overall measure of innovativeness). The vitality index increased from single digits in 2014 to high teens in 2016.
Allegion continues to invest significantly in the emerging markets, such as opening additional offices, and investing in localized product and supply chain capabilities. The company’s expertise in security products and solutions would help it to cash in on the increasing demand in emerging markets as security requirements and sophistication levels rise.
Allegion has significant exposure to the U.S. construction sector, especially in the commercial and residential construction and remodeling markets. Also, the company’s revenues are expected to increase with the gradual recovery in the housing market and strength in consumer spending patterns. Residential revenues grew mid-single digits in the first quarter of 2017, buoyed by continued strength in electronics.
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