Machinery Stocks

Allegion PLC Valuation – May 2018 $ALLE

Company Profile (excerpt from Reuters): Allegion Public Limited Company, incorporated on May 9, 2013, 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 segments include Americas; Europe, Middle East, India and Africa (EMEIA), and Asia Pacific. Its products include door closers and controls; door and door frames (steel); electronic security products; electronic and biometric access control systems; exit devices; locks, locksets, portable locks and key systems; time, attendance and workforce productivity systems, and other accessories. The Company sells a range of security products and solutions for end users in commercial, institutional and residential facilities across the world, including into the education, healthcare, government, hospitality, commercial office and single and multi-family residential markets. As of December 31, 2016, it manufactured and sold mechanical and electronic security products and solutions in approximately 130 countries.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ALLE – May 2018

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 $7,259,699,628 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.78 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 317.62% Pass
6. Moderate PEmg Ratio PEmg < 20 25.49 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 16.00 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 1.78 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.21 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

EPSmg $2.99
MG Growth Estimate 15.00%
MG Value $115.01
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $43.32
MG Value based on 0% Growth $25.39
Market Implied Growth Rate 8.50%
Current Price $76.15
% of Intrinsic Value 66.21%

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 Undervalued after growing its EPSmg (normalized earnings) from $1.45 in 2014 to an estimated $2.99 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.5% 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 above the price.

At the time of valuation, further research into Allegion PLC revealed the company was trading above its Graham Number of $20.15. The company pays a dividend of $0.64 per share, for a yield of 0.8% Its PEmg (price over earnings per share – ModernGraham) was 25.49, which was below the industry average of 28.03, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-14.3.

Allegion PLC performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$14.30
Graham Number $20.15
PEmg 25.49
Current Ratio 1.78
PB Ratio 16.00
Current Dividend $0.64
Dividend Yield 0.84%
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $802,600,000
Total Current Liabilities $452,100,000
Long-Term Debt $1,474,100,000
Total Assets $2,628,100,000
Intangible Assets $1,423,800,000
Total Liabilities $2,172,100,000
Shares Outstanding (Diluted Average) 95,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.27
Dec2017 $2.85
Dec2016 $2.36
Dec2015 $1.59
Dec2014 $1.80
Dec2013 $0.34
Dec2012 $2.29
Dec2011 $2.27

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.99
Dec2017 $2.16
Dec2016 $1.77
Dec2015 $1.53
Dec2014 $1.45
Dec2013 $1.18
Dec2012 $1.37
Dec2011 $0.76

Recommended Reading:

Other ModernGraham posts about the company

Allegion PLC Valuation – January 2017 $ALLE
Allegion PLC Valuation – August 2016 $ALLE
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

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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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