For Immediate Release
Chicago, IL – December 3, 2021 – Today, Zacks Equity Research discusses Security Services, including Johnson Controls (NYSE:JCI) International plc JCI, Alarm (NASDAQ:ALRM).com Holdings, Inc. ALRM, KnowBe4, Inc. KNBE and Ituran Location and Control Ltd. ITRN.
Link: https://www.zacks.com/commentary/1834334/4-security-services-stocks-to-buy-amid-industry-challenges
The Zacks Security and Safety Services industry seems to be gaining from healthy demand for products and solutions, supported by growing awareness about security and safety of workers and facility infrastructure. Increasing demand for cybersecurity products is supporting the companies.
The industry participants have also been benefiting from strong online demand. However, the pandemic’s impacts on new construction along with difficulty in sourcing labor, and inflation in raw materials and other expenses remain concerns. Johnson Controls, Alarm.com, KnowBe4 and Ituran Location and Control are few stocks with solid prospects.
About the Industry
The Zacks Security and Safety Services industry comprises companies that provide sophisticated and interactive security solutions and related services meant to be used for residential, commercial and institutional purposes. A few industry players develop electrical weapons for personal defense as well as military, federal, law enforcement and private security.
There are other companies that 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 also provide a variety of services to automobile owners and insurance companies. Customers belong to various end markets, including manufacturing, electronics, hospitality, education, construction, telecommunications, aerospace and medical.
3 Trends Shaping the Future of the Security and Safety Services Industry
Favorable Trends: The industry has been benefiting from the rise in industrial activities, increased awareness about security and safety of workers and facility infrastructure, as well as the requirement to deal with increasing fraudulent activities. The industry participants have solid opportunities owing to the growing adoption of sophisticated technologies, infrastructure development and strength in the construction market in the United States.
People preferring to purchase products through e-commerce platforms, particularly amid the pandemic, has also opened up opportunities for industry players. The industry’s revenues totaled $7.9 billion in 2020, while its top line was $1.9 billion in the quarter ended September 2021.
Pandemic & Other Concerns: The prolongation of COVID-19-restrictions owing to the possibility of a third wave has raised concerns for many industry players as it might hurt renovation projects, constructions and spending on commercial buildings. The industry players have also been witnessing supply-chain disruptions and inflation in raw materials and other expenses, which have been weighing on their margins and profitability. The shortage of skilled workers in the United States has been a persistent concern as well.
High Leverage: Innovation plays a vital role in the industry. Constant update of products and services is required to keep up with changing customer needs, making steady investments necessary. Also, the industry participants often make acquisitions to broaden product portfolio, enhance technological capabilities and extend geographical reach.
Such massive investments often leave companies with a highly leveraged balance sheet. The industry’s long-term debt was $4.7 billion at the end of third-quarter 2021.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Security and Safety Services industry is a 23-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #230, which places it in the bottom 9% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates weak 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 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of gloomy earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry’s earnings estimates for 2021 moved down 23% year over year.
Before we discuss a few stocks from the industry, let’s have a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector But Underperforms S&P 500
The Zacks Security and Safety Services industry has outperformed its sector but underperformed the S&P 500 in the past six months. The industry has declined 0.3% against the S&P 500’s rally of 8.8% and the sector’s fall of 5.2%.
Security and Safety Services Industry's Valuation
P/E ratio is commonly used for valuing security and safety services stocks.
The industry’s forward 12-month P/E ratio is 21.7. This clearly shows that the industry is trading above the S&P 500’s forward 12-month P/E ratio of 21.36 and the sector’s 19.42.
Over the past five years, the industry has traded at the highest level of 24.61X forward 12-month P/E and the lowest level of 11.09X. The median level over the same period was 16.96X.
4 Security and Safety Services Stocks Leading the Pack
Below we have discussed four stocks from the industry, carrying either a Zacks Rank #2 (Buy) or a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Johnson Controls: The diversified technology company provides efficient energy solutions, building systems and integrated infrastructure. Johnson Controls is poised to benefit from its focus on product launches, existing solid offerings, digital platforms and acquisitions in the quarters ahead. However, high capital expenditures and rising debt levels remain concerns.
Shares of this Cork, Ireland-based company have rallied 12.6% in the past six months. The Zacks Rank #3 company reported better-than-anticipated results thrice in the last four quarters, with an earnings surprise of 3.69%, on average. JCI’s earnings estimates have moved 0.3% north for both fiscal 2022 (ending September 2022) and fiscal 2023 (ending September 2023) in the past 30 days.
Alarm.com: The company provides interactive security solutions for home and business owners. Alarm offers security systems that include door locks, motion sensors, garage doors, thermostats, video cameras as well as high-definition video monitoring and commercial video surveillance solutions. Strengthening demand for products and solutions and buyout activities are anticipated to be beneficial. However, high costs and operating expenses might be concerning. ALRM presently carries a Zacks Rank #3.
This Tysons, VA-based company’s shares have appreciated 1.2% in the past six months. It surpassed estimates in each of the last four quarters, the average earnings surprise being 45.06%. In the past 30 days, the company’s earnings estimates have increased 5.6% for 2021 and have moved up 1.5% for 2022.
KnowBe4: The company is engaged in providing security awareness training and simulated phishing platform. The company’s security awareness platform is used across organizations for assessing, monitoring, and reducing the cybersecurity threat of social engineering attacks. KnowBe4 stands to gain from improvement in end-market conditions, acquired assets, focus on product development initiatives and strong free cash flow.
However, rising expenses and high costs related to integration activities for acquired assets are expected to hurt its short-term earnings. The company currently carries a Zacks Rank #3.
Shares of this Clearwater, FL-based company have jumped 12% in the past six months. KNBE reported better-than-anticipated results twice in the last four quarters, with an earnings surprise of 133.33%, on average. The company’s earnings estimates have been stable for 2021 and increased 10% for 2022 in the past 30 days.
Ituran Location and Control: The company engages in providing value-added location-based services. Its offering includes vehicle-related management & control services, fleet management, mobile asset location, stolen vehicle recovery, and personal security for the insurance and retail industry. Ituran is poised to gain from strengthening subscriber base (after-market), global presence and a solid customer base. The company presently carries a Zacks Rank #2.
Shares of this Azor, Israel-based company have jumped 4.7% in the past six months. ITRN reported better-than-anticipated results thrice in the preceding four quarters, with an earnings surprise of 8.60%, on average. In the past 30 days, the company’s earnings estimates have moved 5.4% north for 2021 and increased 3% for 2022.
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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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Johnson Controls International plc (JCI): Free Stock Analysis Report
Alarm.com Holdings, Inc. (ALRM): Free Stock Analysis Report
Ituran Location and Control Ltd. (ITRN): Free Stock Analysis Report
KnowBe4, Inc. (KNBE): Free Stock Analysis Report
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