Lagging Late-Cycle Exposure Can Help Allegion, But The Valuation Isn't Compelling To Me

I wasn’t overly fond of Allegion (NYSE:ALLE) when I last wrote about this leading manufacturer of locks, door controls, and access systems, as I thought the shares were getting a bit too much credit for their end-market leverage. The shares have fallen more than 20% since then, underperforming the broader industrial space by more than 10%, as well as underperforming the shares of the company’s largest rival Assa Abloy (OTCPK:ASAZY) – all of that including a nice post-earnings kick of close to 10%.

I’m conflicted on the shares right now. I don’t really like the valuation all that much, and I don’t think my outlook for 5%-7% long-term revenue and FCF growth is exactly conservative. On the other hand, the company still has lagging price action acting as a tailwind, not to mention late-cycle exposure that investors seem to find strategically attractive today. Still, I’m concerned about the health of the construction markets that Allegion serves, and I’d prefer a wider margin of safety before investing my own money.

 

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Lagging Late-Cycle Exposure Can Help Allegion, But The Valuation Isn't Compelling To Me