Can Allegion (ALLE) Earnings Spring a Surprise in Q4? – February 7, 2017

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Allegion PLC (ALLE Free Report) is scheduled to release fourth-quarter 2016 financial numbers, before the opening bell on Feb 9.

In the last reported quarter, the company had posted a negative 2.1% earnings surprise. Notably, the company surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average earnings beat of 6.2%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Allegion’s acquisitions and focus on innovation are encouraging. Further, a gradually recovering U.S. housing market bodes well for the company. The company’s performance in the first nine months of 2016 was impressive, buoyed by higher margins and revenues from acquisitions and organic growth.

All the regions reported strong profits, barring Asia Pacific, driven by a stable market, investment in new products and channel strategies. The company also expects to maintain the performance in the fourth quarter as well.

Allegion continuously updates its products and develops new ones to keep up with the changing market sentiment toward electronic security products and solutions. Additionally, its incremental investments in organic growth for new product development, proved to be beneficial and we expect the improvement to continue in the fourth quarter.

However, we are concerned about the economic slowdown in certain pockets of the world where Allegion has a considerable presence. The prevailing sluggishness in the Eurozone and continuing recession in China are likely to keep the company’s international profits under pressure, in the to-be-reported quarter. Moreover, owing to the company’s substantial international presence, volatile currency translations could prove to be a significant headwind.

Allegion expects adjusted earnings per share in the range of $3.38 to $3.43, higher than the prior expectation of $3.30 to $3.40, for 2016. Revenues are projected in the band of  8% to 9% in 2016. Full-year organic revenues (excluding currency and acquisitions) are likely to increase in 5% to 6% range, which is in line with the prior expectations.

Meanwhile, for the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at 87 cents a share, reflecting a decrease of 1.9% year over year, while the consensus for revenues is at $572.3 million, implying 4.9% year-over-year growth.

Earnings Whispers

Our proven model does not conclusively show that Allegion is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Allegion PLC Price and EPS Surprise

 

Zacks ESP:  Allegion has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 87 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Allegion has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the broader industrial products sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Fairmount Santrol Holdings Inc. (FMSA Free Report) , with an Earnings ESP of +11.11% and a Zacks Rank #1, is expected to release its quarterly numbers on Mar 9. You can see the complete list of today’s Zacks #1 Rank stocks here.

Century Aluminum Company (CENX Free Report) , with an Earnings ESP of +62.5% and a Zacks Rank #3, is scheduled to report its fourth-quarter results on Feb 23.

AGCO Corporation (AGCO Free Report) , with an Earnings ESP of +5.63% and a Zacks Rank #3, is slated to report its fourth-quarter results on Feb 7.

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Source: einnews.com