Machinery Stocks

Allegion PLC Analysis – September 2015 Update $ALLE

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Allegion PLC (ALLE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Allegion plc is a provider of security products and solutions. The Company offers a portfolio of mechanical and electronic security products across a range of brands. Its products include door closers and controls, electronic security products, exit devices, time, attendance and workforce productivity systems, door and door frames (steel), electronic and biometric access control systems, locks, locksets and key systems, video analytics systems and other accessories. The Company’s products also include an array of sealing systems, such as sound control, fire and smoke protection, threshold applications, lites, door louvers, intumescent products, photo-luminescent and flood barrier for doors.It operates in three geographic segments: Americas; Europe, Middle East, India and Africa (EMEIA), and Asia Pacific. The Company’s brands include CISA, FALCON, Briton, Schlage, Bricard, LCN, Von Duprin, STEELCRAFT, NORMBAU and INAFER, among others.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ALLE – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ALLE value Chart September 2015

EPSmg $1.89
MG Growth Estimate 15.00%
MG Value $72.66
Opinion Fairly Valued
MG Value based on 3% Growth $27.37
MG Value based on 0% Growth $16.04
Market Implied Growth Rate 11.73%
Current Price $60.32
% of Intrinsic Value 83.01%

Allegion PLC qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short history as a stand-alone company, low current ratio and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.76 in 2011 to an estimated $1.89 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 11.73% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Allegion PLC (ALLE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

ALLE Charts September 2015

Net Current Asset Value (NCAV) -$10.54
Graham Number $5.42
PEmg 31.96
Current Ratio 1.93
PB Ratio 123.30
Dividend Yield 0.60%
Number of Consecutive Years of Dividend Growth 2

 

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Most Recent Balance Sheet Figures

Total Current Assets $923,200,000
Total Current Liabilities $479,000,000
Long-Term Debt $1,190,500,000
Total Assets $1,989,600,000
Intangible Assets $650,000,000
Total Liabilities $1,942,300,000
Shares Outstanding (Diluted Average) 96,700,000

Earnings Per Share History

Next Fiscal Year Estimate $2.66
Dec14 $1.80
Dec13 $0.32
Dec12 $2.29
Dec11 $2.27

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.89
Dec14 $1.45
Dec13 $1.17
Dec12 $1.37
Dec11 $0.76

Recommended Reading:

Other ModernGraham posts about the company

23 Companies to Research This Week – 9/13/14
Allegion Public Limited Co. Annual Stock Valuation – 2014 $ALLE

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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