Allegion Receives Imperial Upgrade Following Q3's Strong Organic Growth

Imperial Capital has upgraded Allegion PLC ALLE to Outperform from In Line after the company recorded revenue growth in all regions for its third quarter as shares have been trading at a discount to valuation. Furthermore, the firm sees 12–18 month-growth potential.

Allegion reported third quarter revenue of $581 million, consistent with Imperial’s estimate of $582 million and slightly below consensus of $587 million. Revenue increased 6.7 percent and up 5 percent organically. Adjusted EPS of $0.93 rose 1.1 percent and largely consistent with Imperial estimate of $0.94 and slightly below the consensus estimate of $0.95.

However, the company raised the midpoint of FY16 EPS guidance, resulting in full-year EPS guidance outlook of $3.38–$3.4, up from prior guidance of $3.30–$3.40.

“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,” analyst Jeff Kessler wrote in a note.

That said, the analyst remains cautious on Asian growth, select European regions and select verticals in the United States. As such, Kessler cut his price target $72 from $79, with the revised target representing an upside of 13 percent above recent share price.

Earlier in August, Kessler has downgraded Allegion saying he doesn’t see the stock to outperform its closest peers.

Shares of Allegion closed Monday’s trading at $63.84.

Posted In: imperial capitalJeff KesslerAnalyst ColorEarningsLong IdeasNewsGuidanceUpgradesPrice TargetAnalyst RatingsTrading Ideas