Imperial Capital Doesn't See Allegion Outperforming Peers, Downgrades Stock

Allegion PLC ALLE reported beat 2Q16 results, driven by impressive revenue growth.

Imperial Capital’s Jeff Kessler downgraded the rating on the company from Outperform to In Line, while raising the price target from $71 to $79.

Stock Unlikely To Outperform

Kessler does not expect the stock to outperform its closest peers, although the analyst believes that the company will invest in revenue generating projects in 2017.

“Given Allegion’s cost reductions, continued expansion, increased use of its strong cash flow for revenue-generating investments, and the company’s leading position in certain key product categories and geographies, we continue to remain positive on Allegion’s fundamentals through 2017 and the stock price over that period,” the analyst said.

Guidance Raised

Management raised the lower end of its EPS guidance for FY16 from $3.25–$3.40 to $3.30–$3.40 on July 28.

Related Link: CLSA Downgrades Allegion To Outperform

“Allegion is the fastest growing large lock and access control company in a sector of the security industry that is getting increasing priority,” Kessler said.

Risks

However, there also are risks associated with the increased investment level underperforming the company’s objectives, including improved penetration of the retrofit market in North America, as well as increased penetration and education of locksmiths adopting electronic technologies.

Kessler also believes there could be risks to continued improvement in margins and revenues in Europe, along with importation of new U.S.-based technologies to Europe to further drive up the EBITDA in the continent.

Full ratings data available on Benzinga Pro.