Machinery Stocks

Allegion PLC Valuation – August 2016 $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 Companies Benjamin Graham Would Invest In Today – July 2016.  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 Public Limited Company is a provider of security products and solutions. The Company offers a portfolio of mechanical and electronic security products across a range of brands. It operates through three segments: Americas; Europe, the Middle East, India and Africa (EMEIA), and Asia Pacific. The Company’s 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, and other accessories. The Company sells its products and solutions under the brands, including CISA, AXA, Briton, Falcon, LCN, Interflex, Von Duprin, Schlage, Milre, PegaSys, SimonsVoss, aptiQ, IVES and Brio. It sells a range of security products and solutions for end users in commercial, institutional and residential facilities around the world, including into the education, healthcare, government and hospitality markets.

ALLE Chart

ALLE data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ALLE – August 2016

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 $6,990,391,159 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.76 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 22300.00% Pass
6. Moderate PEmg Ratio PEmg < 20 34.58 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 50.31 Fail
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 1.76 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.01 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 August 2016

EPSmg $2.09
MG Growth Estimate 7.93%
MG Value $50.95
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $30.33
MG Value based on 0% Growth $17.78
Market Implied Growth Rate 13.04%
Current Price $72.35
% of Intrinsic Value 142.00%

Allegion PLC is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.37 in 2012 to an estimated $2.09 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.04% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Allegion PLC revealed the company was trading above its Graham Number of $10.38. The company pays a dividend of $0.44 per share, for a yield of 0.6% Its PEmg (price over earnings per share – ModernGraham) was 34.58, which was above the industry average of 20.76. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-14.24.

Allegion PLC receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

ALLE charts August 2016

Net Current Asset Value (NCAV) -$14.24
Graham Number $10.38
PEmg 34.58
Current Ratio 1.76
PB Ratio 50.31
Current Dividend $0.44
Dividend Yield 0.61%
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $827,900,000
Total Current Liabilities $469,700,000
Long-Term Debt $1,437,100,000
Total Assets $2,345,500,000
Intangible Assets $1,118,700,000
Total Liabilities $2,206,300,000
Shares Outstanding (Diluted Average) 96,800,000

Earnings Per Share History

Next Fiscal Year Estimate $3.33
Dec2015 $1.59
Dec2014 $1.80
Dec2013 $0.34
Dec2012 $2.29
Dec2011 $2.27

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.09
Dec2015 $1.53
Dec2014 $1.45
Dec2013 $1.18
Dec2012 $1.37
Dec2011 $0.76

Recommended Reading:

Other ModernGraham posts about the company

26 Best Stocks For Value Investors This Week – 2/6/16
Allegion PLC Valuation – February 2016 Update $ALLE
15 Best Stocks For Value Investors This Week – 9/12/15
Allegion PLC Analysis – September 2015 Update $ALLE
15 Best Stocks For Value Investors This Week – 9/12/15

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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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