Allegion (ALLE) Q2 Earnings: Will It Surpass Estimates?
Zacks Investment Research | Jul 21, 2016 11:26PM ET
We expect Allegion plc (NYSE:ALLE) – a security solution provider for homes and businesses – to beat expectations when it reports second-quarter 2016 results on Jul 28, before the opening bell.
Last quarter, Allegion posted a negative earnings surprise of 4.69%. However, the company has surpassed estimates in three of the trailing four quarters, with an average beat of 8.77%.
Zacks Rank: Allegion’s Zacks Rank #2 (Buy) increases the predictive power of ESP. The combination of Allegion’s Zacks Rank #2 and +2.25% ESP makes us confident of an earnings beat.
The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-than-Expected Earnings?
Allegion primarily relies on the commercial and residential construction and remodeling space, which have been picking up momentum of late, especially in the U.S. These should drive the demand for the company’s products and thereby its top line in the soon-to-be reported quarter.
Additionally, we expect margin expansion to be supported by prudent cost control and productivity initiatives.
However, we are concerned about the economic slowdown in certain pockets of the world where Allegion has a considerable presence. The prevailing economic sluggishness in the Eurozone and the persistent recession in China are likely to keep Allegion’s international profits under pressure in the to-be-reported quarter. Moreover, owing to the company’s substantial international presence, volatile currency translations could prove to be a significant headwind for the company, though the U.S dollar is softer.
Other Stocks to Consider
Here are some other stocks in the broader industrial products sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Caterpillar Inc. (NYSE:CAT) , with an Earnings ESP of +2.08% and a Zacks Rank #3
Deere & Company (NYSE:DE) , with an Earnings ESP of +9.47% and a Zacks Rank #3
Sealed Air Corporation (NYSE:SEE) , with an Earnings ESP of +1.56% and a Zacks Rank #3
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