Chicago, IL – December 4, 2024 – Today, Zacks Equity Research discusses Allegion plc ALLE, MSA Safety Inc. MSA, ADT Inc. ADT and Alarm.com Holdings, Inc. ALRM.
The Zacks Security and Safety Services industry is well-positioned to gain from the increasing demand for products and solutions, driven by rising awareness about the security and safety of people and infrastructure. The growing demand for cybersecurity products is also benefiting many participants within the industry.
Enhanced research and development efforts, backed by government support, augur well for the industry’s near-term prospects. Companies like Allegion plc, MSA Safety Inc., ADT Inc. and Alarm.com Holdings, Inc. are a few industry participants that may capitalize on these opportunities.
Industry Description
The Zacks Security and Safety Services industry comprises firms that provide sophisticated and interactive security solutions and related services, which are meant to be used for residential, commercial and institutional purposes. A few industry players develop electrical weapons for personal defense and military, federal, law enforcement and private security. Some of them provide solutions for the recovery of stolen vehicles, wireless communication devices, equipment for the safety of facility infrastructure and employees and products for detecting hazards.
A few players provide a variety of services to automobile owners and insurance companies. The industry serves customers from various end markets, including manufacturing, electronics, hospitality, education, construction, telecommunications, aerospace and medical.
3 Security & Safety Services Industry Trends in Focus
Healthy Demand for Security and Safety Services: Growing instances of terrorism and criminal activities with concerns related to the ever-increasing fraudulent activities are promoting demand for security and safety services. To enhance the safety and surveillance of people or assets, governments, commercial operations, communities and other establishments across the world are rapidly deploying IP-based cameras. This is acting as a key growth driver for the industry.
With growing urbanization, the increasing requirement to ensure the safety and security of infrastructure at offices, factories and residential buildings is aiding industry participants. Also, with rising instances of hacking, the industry is seeing higher demand for Internet security products and services like firewalls, intrusion detection systems (IDS) and intrusion prevention systems (IPS). People’s preference for purchasing products through e-commerce platforms also opened up opportunities for industry players.
Other Favorable Trends: Increases in budgets and funds from governments have invited several big players to make significant investments in the research and development of advanced products and services. Government and law enforcement agencies in the United States and Canada are directly working with industry participants to strengthen the security infrastructure of smart cities.
High Debt Levels: Industry participants constantly focus on innovation, product upgrades and the development of new products to cater to the changing customer needs and stay competitive, making steady investments necessary. While this augurs well for the industry’s long-term growth, hefty investments in research and development often leave companies with highly leveraged balance sheets. The industry’s long-term debt/capital ratio is currently 0.61, higher than 0.48 of the sector.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Security and Safety Services industry, housed within the broader Industrial Products sector, currently carries a Zacks Industry Rank #59. This rank places it in the top 24% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-Ranked industries is a result of the solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are putting more faith in this group's earnings growth potential. The industry’s earnings estimates for 2024 have increased 0.7% over the past year.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector & S&P 500
The Zacks Security and Safety Services industry has outperformed both the broader sector and the Zacks S&P 500 composite index in the past year.
Over this period, the industry has moved up 64.3% compared with the sector’s and the S&P 500 Index’s increase of 32.8% and 32.4%, respectively.
Industry's Current Valuation
On the basis of forward P/E (F12M), which is a commonly used multiple for valuing security and safety services stocks, the industry is currently trading at 33.38X compared with the S&P 500’s and the sector’s 22.58X and 22.27X, respectively.
Over the past five years, the industry has traded as high as 33.38X, as low as 14.16X and at the median of 22.45X.
Security and Safety Services Stocks Leading the Pack
Alarm.com: Based in Tysons, VA the company is engaged in providing Internet of Things (IoT) and solutions for multi-family, residential and small businesses in North America and globally. Strengthening demand for products and solutions and buyout activities have been driving the company’s performance of late. A favorable product mix and improved supply-chain conditions are likely to be beneficial moving ahead.
In the past 60 days, estimates for ALRM’s earnings have increased 7.3% for 2024. This Zacks Rank #1 (Strong Buy) company’s shares have gained 12.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here..
Allegion: The Dublin, Ireland-based company is a leading provider of mechanical and electronic security products, including doors and door systems, electronic security products and biometric and mobile access control systems. It is well-positioned to benefit from strength in its Americas and International segments, driven by an increase in demand for electronic security products. Increased adoption of advanced technologies and solutions in the electronics security products market, such as wireless locks and mobile-enabled smart locks, is expected to drive ALLE’s performance in the quarters ahead.
In the past 60 days, estimates for this Zacks Rank #2 (Buy) company’s earnings have increased 2.4% for 2024. Its shares have risen 31.2% in the past year.
MSA Safety: The company is engaged in the development, manufacture and supply of safety products that protect people and facility infrastructures. Its core products include self-contained breathing apparatus, fixed gas and flame detection systems, air-purifying respirators and gas masks, among others. Strengthening demand for its fire service and detection products has been driving the company’s performance of late. A favorable product mix and improved supply-chain conditions are likely to be beneficial moving ahead.
The company’s earnings surpassed the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 5.8%. Shares of the Zacks Rank #2 company gained 3.5% in the year-to-date period.
ADT: Based in Boca Raton, FL, the company offers security and smart home solutions including smart security cameras, burglar & life safety alarms and smart home automation systems to residential customers and small businesses. ADT is gaining from strength in the Consumer and Small Business segment, driven by strong customer demand for monitoring and related services. Also, the company’s strategic initiatives, innovation and operational excellence bode well.
The Zacks Consensus Estimate for ADT’s 2024 earnings has increased 12.2% in the past 60 days. Shares of the Zacks Rank #2 company have gained 22.7% in a year.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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