Analyst Note| Brian Bernard, CFA, CPA |
We’ve raised our fair value estimate for Allegion by 1% to $133 per share following the firm’s third-quarter earnings release, primarily due to the time value of money. It was a strong quarter for Allegion as the wide-moat firm delivered 27% sales growth (19% organic) and 100 basis points of adjusted operating margin expansion (to 21%). Allegion’s price/cost woes, which had been an uncharacteristic issue last year and earlier this year, seem to be behind the firm as it realized significant pricing power during the quarter (13% sales growth from price). Allegion’s recent acquisition of Access Technologies, which is margin-dilutive, clouded the substantial margin expansion in the core Americas business. Indeed, excluding AT, the segment’s adjusted operating margin expanded 300 basis points to 28.5% (26% including AT). While AT has a structurally lower operating margin than Allegion’s Americas business, we think the acquisition makes sense strategically, and we thought Allegion paid a fair price (see our April 22 analyst note for our initial thoughts on the acquisition).