Allegion plc (ALLE): what the price requires
At today's price, Allegion plc (ALLE) is priced for +7.3% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/ALLE
Headline
| Field | Value |
|---|---|
| Ticker | ALLE |
| Company | Allegion plc |
| Current price | $135.84/sh |
| Composition | Products 93% / Services and software 7% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 7.6% |
| Operating margin today | 20.8% |
| Margin compression implied | -13.2pp |
| Implied growth | 7.3% |
| Multiple paid | 16x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 8.9% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~6.3pp.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -0.16σ |
| cohort percentile (of 225 peers) | 27 |
| implied end-window share | 0% |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 1.72x | 5 | expensive |
| Earnings | 2.28x | 5 | expensive |
| Relative | 1.46x | 5 | expensive |
| Growth | 0.82x | 3 | justifies |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.9%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $216.61 | 0.63x | yes | FCF base $0.7B, growth 9% (input: historical growth), terminal g 4.0%, WACC 7.9%, 6yr projection |
| DCF Exit Multiple | Growth | $165.88 | 0.82x | yes | Exit EV/EBITDA: 14.3x / 16.3x / 18.3x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $118.36 | 1.15x | yes | P/E 18x (static sector reference · 2026-04), scenarios: 14.9x / 18.0x / 21.1x (bear / base = reference held flat / bull), EV/EBITDA 12x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $79.11 | 1.72x | yes | BV/sh $24.26, ROE (TTM) 30.2%, ke 9.3% |
| Two-Stage Excess Return | Asset | $147.56 | 0.92x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $115.96 | 1.17x | yes | Rev $4.2B, growth 9% (input: historical growth; tapered), Terminal P/S: 2.3x / 2.8x / 3.3x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $87.84 | 1.55x | yes | EPS $7.32, growth 3% (input: historical EPS growth), PEG=7.36 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $57.28 | 2.37x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.71B × (1−19%) / WACC 7.9% → EPV (no growth) |
| Residual Income | Asset | $120.72 | 1.13x | yes | BV $24.26 + 5yr PV of (ROE (TTM) 30.2% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $63.22 | 2.15x | yes | √(22.5 × EPS $7.32 × BVPS $24.26) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $93.26 | 1.46x | yes | EBITDA $0.86B × sector EV/EBITDA 12.0x |
| FCF Yield | Earnings | $59.52 | 2.28x | yes | FCF $682.6M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $55.72 | 2.44x | yes | SBC-adj FCF $0.65B (FCF $0.68B − SBC $0.03B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $83.07 | 1.64x | yes | EPS $7.32 × (8.5 + 2×2.5%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $11.14 | 12.19x | yes | BV $24.26 × (ROIC 3.6% / WACC 7.9%) |
| P/Sales Sector | Relative | $120.06 | 1.13x | yes | Revenue $4.16B × sector P/S 2.5x |
| PEG Fair Value | Relative | $36.60 | 3.71x | yes | EPS $7.32 × (PEG 1.5 × growth 2.5% (input: historical EPS growth)) → PE 3.8x |
| Earnings Yield | Earnings | $79.14 | 1.72x | yes | EPS $7.32 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $1.7b |
| Net debt / NOPAT (after-tax) | 2.46x |
| Net debt / operating income (pre-tax) | 1.98x |
| Interest coverage | 8.4x |
| Share count CAGR (buyback) | -0.6% |
| Burning cash | no |
Bullet Takeaways
- Allegion makes the locks, exit devices, and door hardware that get written into building specifications by architects and code, which is why a roughly 20% operating margin and a 30% return on equity sit on a business most people never think about.
- The biggest near-term risk is self-inflicted: a software-system changeover in a legacy international mechanical business disrupted production and pulled first-quarter 2026 adjusted operating margin down 150 basis points, even as revenue grew nearly 10%.
- What to watch is the electronics mix and the Americas non-residential book, the two drivers management is leaning on, against a full-year 2026 adjusted EPS outlook the company affirmed at $8.70 to $8.90.
Bull Case
The standard valuation lenses underrate Allegion because they treat it as an ordinary hardware manufacturer, and it is not one. The product is a commodity in appearance and a specified component in reality. Allegion's commercial sales run through "specification writers who work with architects, engineers and consultants to help design door openings and security systems to meet end-users' functional, aesthetic and regulatory requirements". Once a brand is written into a building's specification and its fire and life-safety code compliance, it is designed in for the life of the structure, and the replacement and upgrade demand that follows is non-discretionary. That is why a company selling locks earns the returns of a franchise: a roughly 20% operating margin and a return on equity above 30% on a trailing basis, numbers a generic industrial does not produce.
The growth lever is the quiet shift from mechanical to electronic. The company expects the industry to keep benefiting from "growth in global electronic and electromechanical products", and in the first quarter of 2026 electronics sales grew mid-single digits, with management framing electronics as a long-term growth driver. An electronic lock carries more content, more software, and more recurring connection value than a mechanical one, so the mix shift lifts both revenue per opening and the durability of the customer relationship. The Americas business, the profit engine, grew revenue to $3,218.8 million in 2025 from $3,012.4 million, a 6.9% gain, and that is the segment where the specification moat and the electronics upgrade overlap most.
Capital allocation is disciplined and the balance sheet supports it. Allegion converts earnings to cash efficiently, with trailing free cash flow near $683 million, and it carries modest leverage at under two times operating income with interest covered about eight and a half times. The company is using that capacity to buy adjacent capability rather than to lever up: the DCI acquisition closed in March 2026, adding West Coast manufacturing presence. A franchise that compounds at high returns, throws off cash, and reinvests it into bolt-on capability is the kind of business where today's price, near where the cash-flow methods land, is paying for durability rather than a leap of faith.
Bear Case
The honest place to start the bear case is the disagreement among the methods, because it says exactly what kind of bet the price is. At $133.57 (June 27, 2026), the static lenses, which value Allegion on its assets, its demonstrated earnings power, and peer multiples, all say the stock is richly valued. Earnings-power value lands near $57, a free-cash-flow capitalization near $60, and a conservative Graham floor near $63, all well below the price. Only the forward-growth methods reach today's quote, with a perpetual-growth cash-flow read near $218 and an exit-multiple read near $164. When the conservative methods cluster far below the price and only the growth methods justify it, the price is a durability premium: it assumes Allegion keeps compounding at high returns for years. The conservative methods are not wrong about today; they are saying the price already credits a future that has to be earned.
That future is not guaranteed, because the demand base is more cyclical than the margins suggest. Allegion's commercial revenue depends on construction and renovation, and the company is candid that customers may "delay or cancel capital projects or otherwise choose not to make purchases, which could negatively impact the demand for our products and solutions and result in declines in our revenues, profitability and cash flows". Non-residential construction turns with interest rates and credit, and a downturn in commercial building would slow the new-specification wins that feed the long-tail replacement demand. The aftermarket is sticky, but the front end of the funnel is cyclical, and a price that assumes steady compounding is exposed to a construction slowdown the static methods are implicitly warning about.
The first quarter showed how quickly execution can dent the model even in a good demand environment. Revenue grew 9.7%, but GAAP earnings per share fell 7.0% to $1.59, and adjusted operating margin dropped 150 basis points to 21.2%, because a software-system implementation in a legacy international mechanical business disrupted production. That is a self-inflicted wound, not a demand problem, but it is a reminder that a premium-priced compounder has little room for operational stumbles. On the cost side, the company notes it does "not currently use financial derivatives to hedge against volatility in commodity prices" and relies on passing increases to customers, so input-cost inflation that cannot be repriced fast enough is a live margin risk. The bear case is not that Allegion is a bad business; it is that the price already pays for the good business, and the methods that value what it has actually demonstrated sit a long way below.
Valuation
Today's price sits almost exactly where the full set of methods blends out, which is unusual and worth dwelling on. At $133.57 Allegion trades near the midpoint of its valuation range, but that midpoint hides a wide split: the methods do not agree, they straddle. The cleanest way to read the price is through that split rather than the blend. The asset, earnings-power, and peer-multiple lenses, which price what the company has already demonstrated, land well below the price, while the forward-growth lenses land above it. The price is therefore a moderate durability premium. It is not a bet on a discontinuous breakout; it is a bet that a high-return, cash-generative franchise keeps doing what it does.
The inversion makes the bet concrete and, encouragingly for a holder, modest. To justify the price, Allegion does not need to widen its margin; the embedded assumption is a future operating margin well below the roughly 20% it earns today, paired with mid-single-digit growth. In other words, the price requires Allegion to grow steadily while giving back some margin, which is a far less demanding requirement than a typical premium industrial faces. That is the signature of a quality compounder priced fully but not absurdly: the math does not require heroics, it requires continuity. The risk in that framing is not that the assumptions are aggressive; it is that continuity itself is the bet, and a cyclical construction downturn or a repeat of the execution stumble would break it.
Solvency leaves ample room under the downside. Net debt near $1.67 billion is modest against trailing operating income, at under two times, and interest coverage near eight and a half times means debt service is a small claim on cash flow. The share count has been essentially flat, so this is a cash-return story through dividends and bolt-on acquisitions rather than aggressive buybacks. The balance sheet is not the question for Allegion. The question is entirely whether the durable compounding the price assumes persists through the cycle, because the conservative methods have already priced in what happens if it does not.
Catalysts
Allegion crossed $1 billion in quarterly revenue for the first time, reporting $1,033.6 million in the first quarter of 2026, up 9.7% on a reported basis and 2.6% organically. The growth bridge was diversified: organic volume led by the Americas non-residential segment, price realization of 4.6%, acquisitions adding 4.8%, and a 2.3% currency tailwind. The blemish was the bottom line: GAAP earnings per share fell 7.0% to $1.59 and adjusted earnings per share fell 3.2% to $1.80, as a software-system implementation in a legacy international mechanical business disrupted production and compressed adjusted operating margin by 150 basis points to 21.2%.
The forward setup is steady. The company raised its full-year 2026 reported revenue growth outlook to 6% to 8%, inclusive of the DCI acquisition that closed in March, while affirming organic growth of 2% to 4% and full-year 2026 adjusted EPS of $8.70 to $8.90. The next earnings report is the read on whether the ERP-related production disruption is one-and-done, which is the swing factor between the affirmed EPS range and a miss. With demand growing and price holding, the watch is on execution and margin recovery rather than on top-line momentum.
Peer Cohorts (Per Segment, With Filing Citations)
Allegion Americas / Allegion International (reported)
- ADT (ADT Inc.)
- (no filing in the citation store)
- ARLO (ARLO TECHNOLOGIES, INC.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q1 FY2026 earnings release · Q1 FY2026 earnings call