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4 Security & Safety Stocks Poised to Gain on Promising Industry Trends

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The Zacks Security and Safety Services industry is poised to benefit from the strong demand for products and solutions with growing awareness about the security and safety of people and infrastructure. Higher research and development activities supported by governments and a reduction in raw material costs augur well for the industry’s near-term prospects.

The increase in demand for cybersecurity products supports several industry participants’ prospects as well. Companies like Allegion plc (ALLE - Free Report) , Clear Secure, Inc. (YOU - Free Report) , Brady Corporation (BRC - Free Report) and Napco Security Technologies, Inc. (NSSC - Free Report) are a few industry participants that might capitalize on these opportunities.

Industry Description

The Zacks Security and Safety Services industry comprises firms 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 and 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 players provide a variety of services to automobile owners and insurance companies. The industry serves customers from various end markets, including manufacturing, electronics, hospitality, education, construction, telecommunications, aerospace and medical.

3 Security & Safety Services Industry Trends in Focus

Healthy Demand for Security and Safety Services: Growing instances of terrorism and criminal activities with concerns related to the ever-increasing fraudulent activities are promoting demand for security and safety services. With the goal of enhancing the safety and surveillance of people or assets, governments, commercial operations, communities and other establishments across the world are rapidly deploying IP-based cameras. This is acting as a key growth driver for the industry. With growing urbanization, the increasing requirement to ensure the safety and security of infrastructure at offices, factories and residential buildings is aiding industry participants. Also, with rising instances of hacking, the industry is seeing higher demand for Internet security products and services like firewalls, intrusion detection systems (IDS) and intrusion prevention systems (IPS). People’s preference for purchasing products through e-commerce platforms also opened up opportunities for industry players.

Other Favorable Trends: Increases in budgets and funds from governments have invited several big players to make significant investments in the research and development of advanced products and services. Government and law enforcement agencies in the United States and Canada are directly working with industry participants to strengthen the security infrastructure of smart cities. A reduction in raw material costs, thanks to the deceleration in inflation, should also support the bottom line of industry players.

High Debt Levels: Industry participants constantly focus on innovation, product upgrades and the development of new products to cater to the changing customer needs and stay competitive, making steady investments necessary. While this augurs well for the industry’s long-term growth, hefty investments in research and development often leave companies with highly leveraged balance sheets. The industry’s long-term debt/capital ratio is currently 0.42, much higher than 0.31 of the S&P 500 Index.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Security and Safety Services industry, housed within the broader Industrial Products sector, currently carries a Zacks Industry Rank #82. This rank places it in the top 33% 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 robust 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 two to one.

Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and its current valuation first.

Industry Outperforms Sector and S&P 500

The Zacks Security and Safety Services industry has outperformed both the broader sector and the Zacks S&P 500 composite index in the past year.

Over this period, the industry has moved up 23.1% compared with the sector’s and the S&P 500 Index’s increase of 11.4% and 19.9%, 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 20.81X compared with the S&P 500’s and the sector’s 20.68X and 18.29X, respectively.

Over the past five years, the industry has traded as high as 27.06X, as low as 12.65X and at the median of 19.70X, as the chart below shows:

Price-to-Earnings Ratio vs S&P 500

Price-to-Earnings Ratio vs Sector

Security and Safety Services Stocks Leading the Pack

Clear Secure: Based in New York, Clear Secure is a technology company that provides services related to biometric travel document verification systems at some major airports and stadiums. The company’s secure identity platform boasts a multi-layered infrastructure system, which consists of front-end, including enrollment, verification and linking, as well as back-end. It has been benefiting from growth in membership subscription revenues, driven by a rise in CLEAR Verified and CLEAR plus enrollments. Also, escalating CLEAR Plus verifications, combined with higher contributions from CLEAR Verified uses, have been proving beneficial.

In the past 60 days, estimates for YOU’s earnings have increased 18.3% for 2024. This Zacks Rank #1 (Strong Buy) company’s shares have rallied 34.9% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: YOU

Allegion: The Dublin, Ireland-based company is a leading provider of mechanical and electronic security products, including doors and door systems, electronic security products and biometric and mobile access control systems.  It is well-positioned to benefit from strength in its Americas and International segments, driven by an increase in demand for electronic security products. Increased adoption of advanced technologies and solutions in the electronics security products market, such as wireless locks and mobile-enabled smart locks, are expected to drive ALLE’s performance in the quarters ahead.

In the past 60 days, estimates for this Zacks Rank #2 (Buy) company’s earnings have increased 2.4% for 2024. Its shares have appreciated 24.2% in the past year.

Price and Consensus: ALLE

Here, we also present a couple of additional stocks that carry strong fundamentals and have the potential to deliver sustained value to investors over the long term.

Brady: Based in Milwaukee, WI, the company offers complete identification solutions and workplace safety products that help companies improve productivity, performance, safety and security. Brady is gaining from its continued focus on product development, investments in growth opportunities, solid operational execution and cost management actions. Inorganic activities position BRC well for future growth.
 
The Zacks Consensus Estimate for Brady’s fiscal 2025 (ending July 2025) earnings has been stable in the past 60 days. Shares of the Zacks Rank #3 (Hold) company have rallied 28.2% in a year.

Price and Consensus: BRC

Napco Security Technologies: The Amityville, NY-based company offers access control systems, door-locking products, intrusion and fire alarm systems, and video surveillance systems for commercial, residential, institutional, industrial and governmental applications. This Zacks Rank #3 company has been gaining from strong recurring service revenues and product development initiatives. Solid demand for its products in school, healthcare as well as commercial and residential applications markets is expected to drive its performance in the quarters ahead.

The Zacks Consensus Estimate for Napco Security’s fiscal 2025 (ending June 2025) earnings has been revised upward by 13.5% in the past 60 days. Shares of NSSC have soared 41% in the past year.

Price and Consensus: NSSC


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