ALLE Allegion
Quality lock franchise, but at 154 the market is paying for growth the fundamentals haven't delivered.
The story
Allegion is a global security-products franchise (Schlage, LCN, Von Duprin, Interflex) whose moat rests on specification by architects and locksmiths, code-driven commercial door hardware, and a large installed base that generates replacement and retrofit demand. It is a mature, cash-generative incumbent that is slowly shifting its mix toward electronic and access-control products and adding growth through bolt-on acquisitions. Organic growth is mid-single-digit, so it is a steady compounder rather than a growth story.
Nothing in the operating facts justifies a material change. TTM revenue of 4.29B fits the 6-7% path (organic growth plus M&A), and the 20.8% TTM margin is still within reach of the 21.5% target, which sits near recent peaks rather than above them. Sales-to-capital of 1.06 supports 1.1, since acquisitions keep reinvestment heavier than capex alone would suggest. The price has risen about 15% since the last review while value is roughly unchanged. I see that as multiple expansion, not a change in fundamentals, so I am keeping the drivers and accepting that my estimate now sits below the market.
Value drivers
| Revenue growth (Y1) | 6.5% |
| Terminal growth | 2.8% |
| Forecast horizon | 8y |
| Target operating margin | 21.5% |
| Years to target margin | 5 |
| Sales-to-capital | 1.10 |
| Beta | 1.05 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 9.4% |
| Terminal WACC | 9.2% |
Valuation bridge
| PV of explicit FCFF | 3.97B |
| PV of terminal value | 7.04B |
| Equity value | 9.29B |
| ÷ shares → per share | $109.28 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 4.57B | 6.5% | 21.0% | 801.94M | 253.41M | 548.53M | 501.24M |
| 2 | 4.84B | 6.0% | 21.1% | 855.33M | 247.94M | 607.40M | 507.18M |
| 3 | 5.10B | 5.4% | 21.2% | 907.70M | 239.48M | 668.21M | 509.86M |
| 4 | 5.35B | 4.9% | 21.4% | 958.40M | 228.00M | 730.40M | 509.26M |
| 5 | 5.59B | 4.4% | 21.5% | 1.01B | 213.47M | 793.32M | 505.44M |
| 6 | 5.80B | 3.9% | 21.5% | 1.05B | 195.98M | 849.64M | 494.66M |
| 7 | 6.00B | 3.3% | 21.5% | 1.08B | 175.65M | 904.78M | 481.35M |
| 8 | 6.17B | 2.8% | 21.5% | 1.11B | 152.67M | 958.01M | 465.72M |
Key risks
- A slowdown in non-residential construction and institutional spending (education, healthcare) hits Americas commercial volumes
- Margin dilution from acquisitions and tariff or steel cost pressure that price increases cannot fully pass through
- Tech and platform players commoditize electronic access, weakening the specification moat
Catalysts
- Faster electronic and access-control adoption lifts mix and recurring software revenue
- Accretive bolt-on acquisitions, plus buybacks funded by strong free cash flow