Industrials

Report by Behind the Numbers

Among the 19 companies analysed by BTN, those with the biggest risk of overstated earnings from using fully depreciated equipment or unusually long depreciation lives compared to the industry include Allegion, A.O. Smith, Insteel Industries, Trane Technologies and Masco. Meanwhile, they see Simpson Manufacturing, Advanced Drainage Systems, AAON, Trex and Builders FirstSource as being positioned to start seeing lower depreciation expense and capital spending. These companies are already years into modernisation and expanding their equipment bases. Their depreciation has risen and been a headwind to earnings of late, but they may be about to see this level off and put them in a position of rising margins and FCF.

Industrials

Report by Abacus Research

High quality compounder at an attractive valuation - ALLE consistently generates the highest operating margins (>20%) and ROIC (20%) in a market where the top-3 players have ~80% of the US market. Abacus forecast 20% EPS growth from 2021-23 driven by improving margins, increasing penetration of electronic locks and a cyclical bounce in non-residential spending. Inflation fears are overstated and Abacus do not consider Latch to be a long-term threat. A valuation gap has also opened vs. Assa Abloy which is not justified by fundamentals. 12-month TP $181 (30% upside).