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Allegion (ALLE) Q1 Earnings: Can the Stock Pull a Surprise?

Allegion plc ALLE – a security solution provider for homes and businesses – is scheduled to report first-quarter 2016 results on Apr 28, before the opening bell.

Last quarter, Allegion posted a positive earnings surprise of 20.27%. In fact, the company has surpassed estimates in three of the trailing four quarters, with an average beat of 12.07%.

Let’s see how things are shaping up for the upcoming announcement.

Factors to Consider

Allegion stands to benefit from its strategic acquisitions, collaborations and investment in new technology, as demand for electronic security products is growing by leaps and bounds. The Sep 2015 acquisitions of Axa Stenman, a European residential and portable security provider, and SimonsVoss, a leading lock manufacturer based in Europe, should boost revenues from the continent. Moreover, its takeover of South Korea-based producer of innovative electronic door locks, Milre Systek Co., Ltd, last year, will continue to add to its top line.

Additionally, we expect margin expansion to be supported by prudent cost control and productivity initiatives, specific customer and market pricing actions, and the elimination of unprofitable businesses.

On the flip side, the company’s sales are primarily dependent on the U.S. commercial and residential construction and remodeling markets. Thus, the company will likely be hurt seeing that the U.S. housing market recovery stalled toward the beginning of 2016 due to a slowdown in overall economic growth.

Further, 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, a strong dollar could prove to be a significant headwind for the company.

Earnings Whispers

Our proven model does not conclusively show that Allegion is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Allegion is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 64 cents.

Zacks Rank: Allegion’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some 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:

TASER International Inc. TASR, with an Earnings ESP of +11.11% and a Zacks Rank #2.

Tetra Tech, Inc. TTEK, with an Earnings ESP of +5.88 and a Zacks Rank #3.

Plug Power Inc. PLUG, with an Earnings ESP of +16.67% and a Zacks Rank #3.

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PLUG POWER INC (PLUG): Free Stock Analysis Report
 
TETRA TECH NEW (TTEK): Free Stock Analysis Report
 
TASER INTL INC (TASR): Free Stock Analysis Report
 
ALLEGION PLC (ALLE): Free Stock Analysis Report
 
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