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3 Security and Safety Services Stocks to Beat Industry Woes
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The Zacks Security and Safety Services industry is gaining from continued demand for security and safety services, thanks to rising cases of hacking and security breaches in healthcare institutions and other organizations during the pandemic. Product upgrades, enhanced digitization and technological advancements are expected to drive the growth of the industry. However, persistent supply chain woes, especially component shortages, and raw material cost inflation, are weighing significantly on the profitability of companies, thus making the industry’s near-term prospects appear dull.
Despite headwinds, companies like Gen Digital Inc. (GEN - Free Report) , ADT Inc. (ADT - Free Report) and KnowBe4 Inc. are poised to benefit from continued demand in the industry.
About the Industry
The Zacks Security and Safety Services industry comprises companies 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 as well as 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 companies provide a variety of services to automobile owners and insurance companies. The industry serves customers belonging 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
Increased Demand for Security and Safety Services: Thanks to rising instances of hacking, the industry is seeing growing demand for Internet security products and services like firewalls and unified threat management. Security breaches in healthcare institutions and other organizations during the pandemic also boosted demand for safety and security products. Increasing efforts directed toward ensuring safe infrastructure in smart cities bodes well for the industry.
Product Launches and Digitalization: Focus on upgrading and developing new products to keep up with the changing market sentiment toward electronic security products and solutions is expected to bolster the top lines of security and safety services companies. Enhanced digitalization and technological developments are other tailwinds likely to benefit industry participants.
Supply Chain Woes: Persistent supply chain constraints, primarily related to component shortages and labor issues, are hurting the profitability of industry players. High raw material and freight costs are weighing on the bottom line of these companies. Given substantial international exposure, these companies also suffer from foreign currency headwinds.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Security and Safety Services industry, housed within the broader Industrial Products sector, currently carries a Zacks Industry Rank #147. This rank places it in the bottom 42% 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 bleak 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 positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. The Zacks Consensus Estimate for the group’s 2022 earnings per share has decreased 29.8% over the past year.
Despite the industry’s drab near-term prospects, we will present a few stocks that you may want to consider for your portfolio. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Lags Sector, Outperforms S&P 500
While the Zacks Security and Safety Services industry has underperformed the broader sector over the past year, it outperformed the Zacks S&P 500 composite index.
Over this period, the industry has declined 14.7%, compared with the sector and S&P 500 Index’s 12.3% and 16.2% decline, respectively.
One-Year Price Performance
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 22.03X compared with the S&P 500’s 17.67. It is also above the sector’s P/E (F12M) ratio of 16.87X.
Over the past five years, the industry has traded as high as 24.87X, as low as 11.18X and at the median of 17.75X, as the chart below shows:
Gen Digital: The company is focused on powering Digital Freedom through its Cyber Safety brands, Norton, Avast, LifeLock, Avira, AVG, ReputationDefender and CCleaner. The acquisition of Avast should drive Gen Digital’s growth through cost synergies and additional revenue opportunities. A broad product portfolio, diverse distribution channels and focus on execution should fuel the company’s growth in the near term.
Gen Digital has an estimated earnings growth rate of 1.7% for the current fiscal year. The company has a decent earnings surprise history having surpassed the Zacks Consensus Estimate in two of the trailing four quarters, while meeting estimates in the other two. Shares of GEN have appreciated 8.2% in a month.
Price and Consensus: GEN
ADT: The company offers safe, smart and sustainable solutions for people, homes and businesses. Strong customer satisfaction and retention are driving ADT’s growth. Higher pricing and subscriber growth initiatives are other tailwinds for the company. Reduced service costs from the company’s Virtual Assistance program bode well for its bottom-line growth.
ADT has an estimated earnings growth rate of 60% for the current year. The company has a decent earnings surprise history, having outperformed the Zacks Consensus Estimate in two of the preceding four quarters, while missing in the other two. Shares of ADT have gained approximately 10% over the past month.
Price and Consensus: ADT
KnowBe4: The company provides security awareness training and a simulated phishing platform. With heightened focus on security, KnowBe4’s solid product portfolio as well as new product launches for this year should drive its growth. Cross-selling to new and existing customers and international expansion act as key catalysts to KNBE’s growth.
KnowBe4 has an estimated earnings growth rate of 81.8% for the current year. The company has an impressive earnings surprise history, having outperformed the Zacks Consensus Estimate in three of the preceding four quarters while matching the same in one. Shares of KNBE have increased 0.4% in the past month.
Price and Consensus: KNBE
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3 Security and Safety Services Stocks to Beat Industry Woes
The Zacks Security and Safety Services industry is gaining from continued demand for security and safety services, thanks to rising cases of hacking and security breaches in healthcare institutions and other organizations during the pandemic. Product upgrades, enhanced digitization and technological advancements are expected to drive the growth of the industry. However, persistent supply chain woes, especially component shortages, and raw material cost inflation, are weighing significantly on the profitability of companies, thus making the industry’s near-term prospects appear dull.
Despite headwinds, companies like Gen Digital Inc. (GEN - Free Report) , ADT Inc. (ADT - Free Report) and KnowBe4 Inc. are poised to benefit from continued demand in the industry.
About the Industry
The Zacks Security and Safety Services industry comprises companies 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 as well as 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 companies provide a variety of services to automobile owners and insurance companies. The industry serves customers belonging 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
Increased Demand for Security and Safety Services: Thanks to rising instances of hacking, the industry is seeing growing demand for Internet security products and services like firewalls and unified threat management. Security breaches in healthcare institutions and other organizations during the pandemic also boosted demand for safety and security products. Increasing efforts directed toward ensuring safe infrastructure in smart cities bodes well for the industry.
Product Launches and Digitalization: Focus on upgrading and developing new products to keep up with the changing market sentiment toward electronic security products and solutions is expected to bolster the top lines of security and safety services companies. Enhanced digitalization and technological developments are other tailwinds likely to benefit industry participants.
Supply Chain Woes: Persistent supply chain constraints, primarily related to component shortages and labor issues, are hurting the profitability of industry players. High raw material and freight costs are weighing on the bottom line of these companies. Given substantial international exposure, these companies also suffer from foreign currency headwinds.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Security and Safety Services industry, housed within the broader Industrial Products sector, currently carries a Zacks Industry Rank #147. This rank places it in the bottom 42% 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 bleak 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 positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. The Zacks Consensus Estimate for the group’s 2022 earnings per share has decreased 29.8% over the past year.
Despite the industry’s drab near-term prospects, we will present a few stocks that you may want to consider for your portfolio. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Lags Sector, Outperforms S&P 500
While the Zacks Security and Safety Services industry has underperformed the broader sector over the past year, it outperformed the Zacks S&P 500 composite index.
Over this period, the industry has declined 14.7%, compared with the sector and S&P 500 Index’s 12.3% and 16.2% decline, respectively.
One-Year Price Performance
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 22.03X compared with the S&P 500’s 17.67. It is also above the sector’s P/E (F12M) ratio of 16.87X.
Over the past five years, the industry has traded as high as 24.87X, as low as 11.18X and at the median of 17.75X, as the chart below shows:
Price-to-Earnings Ratio
Price-to-Earnings Ratio
3 Security and Safety Services Stocks to Buy
Below we discuss three stocks from the industry that have solid growth opportunities. Each of the stocks mentioned carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Gen Digital: The company is focused on powering Digital Freedom through its Cyber Safety brands, Norton, Avast, LifeLock, Avira, AVG, ReputationDefender and CCleaner. The acquisition of Avast should drive Gen Digital’s growth through cost synergies and additional revenue opportunities. A broad product portfolio, diverse distribution channels and focus on execution should fuel the company’s growth in the near term.
Gen Digital has an estimated earnings growth rate of 1.7% for the current fiscal year. The company has a decent earnings surprise history having surpassed the Zacks Consensus Estimate in two of the trailing four quarters, while meeting estimates in the other two. Shares of GEN have appreciated 8.2% in a month.
Price and Consensus: GEN
ADT: The company offers safe, smart and sustainable solutions for people, homes and businesses. Strong customer satisfaction and retention are driving ADT’s growth. Higher pricing and subscriber growth initiatives are other tailwinds for the company. Reduced service costs from the company’s Virtual Assistance program bode well for its bottom-line growth.
ADT has an estimated earnings growth rate of 60% for the current year. The company has a decent earnings surprise history, having outperformed the Zacks Consensus Estimate in two of the preceding four quarters, while missing in the other two. Shares of ADT have gained approximately 10% over the past month.
Price and Consensus: ADT
KnowBe4: The company provides security awareness training and a simulated phishing platform. With heightened focus on security, KnowBe4’s solid product portfolio as well as new product launches for this year should drive its growth. Cross-selling to new and existing customers and international expansion act as key catalysts to KNBE’s growth.
KnowBe4 has an estimated earnings growth rate of 81.8% for the current year. The company has an impressive earnings surprise history, having outperformed the Zacks Consensus Estimate in three of the preceding four quarters while matching the same in one. Shares of KNBE have increased 0.4% in the past month.
Price and Consensus: KNBE