On Monday, Morgan Stanley (NYSE:MS) initiated coverage on Allegion (NYSE:ALLE) stock, a leading provider of security and access control solutions, assigning an Equalweight rating and establishing a price target of $137.00.
Currently trading at a P/E ratio of 19.9x and showing modest revenue growth of 3%, InvestingPro data indicates the stock generally trades with low price volatility. The firm's analysis indicates that Allegion may face challenges ahead due to its positioning in the industrial market.
Allegion's current market focus, which includes verticals such as Multi-Family and Commercial, is experiencing pressure, while the company has limited exposure to more favorable construction segments like Data Centers, Manufacturing, and Infrastructure.
Additionally, Allegion's significant involvement in Institutional verticals, including Education, Government, and Healthcare, might be subject to further strain with the upcoming initiative on Department of Government Efficiency by President-elect Trump.
Despite the fact that Allegion has not seen volume growth compared to 2019, the company has managed to increase its margins by approximately 300 basis points, benefiting from pricing, cost efficiencies, and favorable product mix. InvestingPro analysis shows a healthy gross profit margin of 44% and good overall financial health, with 8 additional ProTips available to subscribers. However, these benefits are diminishing, and volume growth is needed to achieve the targeted margin expansion of around 50 basis points.
While the outlook for Allegion appears challenging, Morgan Stanley notes that this is already factored into the company's current valuation. Allegion's shares are trading at a significant discount relative to the S&P 500, roughly 20% lower than the historical 15% premium.
The firm's projections suggest a slight downside to earnings per share (EPS) into 2025, with estimates reflecting a market that is prepared for tough conditions. Nevertheless, there is an anticipation of more pronounced downside risks into 2026.
In other recent news, Allegion, a well-known security products provider, has seen significant developments. The company recently appointed Gregg Sengstack to its Board of Directors, expanding the board to nine members. Sengstack, the executive chairperson of Franklin Electric (NASDAQ:FELE) Company, Inc., brings a wealth of experience in international markets and financial management to Allegion.
The company also reported robust financial results for the third quarter of 2024, with revenue reaching $967.1 million, marking a 5.4% increase from the previous year. Adjusted earnings per share rose by 11.3% to $2.16. Additionally, Allegion completed strategic acquisitions, including SOSS Door Hardware, as part of its growth strategy.
In light of these recent developments, Baird maintained a neutral rating for Allegion but increased the stock price target to $152.00 from $145.00. This adjustment was made after evaluating Allegion's financial segments and capital management strategies. The firm noted that Allegion's overall trends remain steady, with stronger institutional performance and a mix of commercial trends. This is all part of the recent news surrounding Allegion.
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