Allegion and Johnson Controls Downgraded: This Analyst Switches Stance Amid Market Challenges

Zinger Key Points
  • Mizuho Securities' Brett Linzey downgrades Allegion and Johnson Controls to Neutral, citing risk/reward.
  • Analyst expects a mixed non-residential market in 2024, cautioning about tough comparables and warning signals.

Mizuho Securities analyst Brett Linzey downgraded both Allegion Plc ALLE and Johnson Controls International Plc JCI to Neutral (from Buy).

The analyst raised the ALLE price target of $141 from $140 and maintained the JCI price target of $62.

ALLE: This week, Allegion reported a fourth-quarter adj. EPS of $1.68, beating the consensus of $1.59, while sales of $897.40 million missed the consensus of $902.10 million.

The analyst downgraded ALLE following a strong run in the stock off the lows and a more balanced risk/reward from here.

The analyst expects non-residential markets to be mixed with Institutional steady and softening commercial pockets. Linzey says 2024 is a “heavier back-end loaded year” than usual, with tough comparables in the first quarter. 

Also, the electronics/software comparables is difficult after delivering +20% in FY23 and will probably shift to something below the longer-term trend this year, writes the analyst. 

Linzey expects the bulk of the FY24 margin to be driven by favorable price/cost/productivity, but continued warning signals related to non-residential markets remain a matter of concern. The analyst now sees adjusted EPS of $7.07 in FY24 and $7.50 in FY25. 

JCI: Last month, the company reported first-quarter revenues of $6.094 billion, missing the analyst consensus of $6.12 billion, while adjusted EPS of $0.51 was in line with the street view.

Johnson Controls revised FY24 adjusted EPS outlook from $3.65-$3.80 to $3.60-$3.75 (street view: $3.66).

Linzey writes that the company’s quarterly performance (and expectations thereof) had been uneven, with the company failing to give any confidence in its ability to consistently execute and improve cash generation. 

The analyst cites incremental demand weakness, particularly in China (APAC -21%), and poor backlog execution as a cause of the FY24 guidance cut. Linzey currently estimates EPS of $3.63 for FY24 and $3.97 for FY25.

Price Action: ALLE shares are trading higher by 0.07% at $129.74 and JCI is up 0.73% at $58.69 on the last check Friday.

Photo via Shutterstock

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