Allegion plc (ALLE) stock intrinsic value fair value estimate & owner earnings analysis

Allegion makes and sells locks, exit devices, door closers, electronic access control and related software and services under brands such as Schlage, Von Duprin, LCN, CISA and SimonsVoss. It reports two segments: Allegion Americas (2025 revenue $3.22 billion, segment operating margin 27.9%) and Allegion International (revenue $848.5 million, margin 9.0%). Total 2025 revenue was $4.07 billion, and about 25% of it came from outside the United States. Allegion is incorporated in Ireland but its business is predominantly US-based. How we measured earnings. We start from operating cash flow, remove the swings from receivables, inventory, payables and other working capital, subtract stock compensation as a real cost, and subtract only the capital spending needed to maintain the business (spending in proportion to revenue growth is treated as growth investment). On that basis owner earnings per diluted share rose from $3.38 in 2016 to $7.87 in 2025, with $5.12 (2021), $5.09 (2022), $5.84 (2023) and $6.64 (2024) in between. Depreciation, amortization of acquired intangibles and impairments are non-cash and are therefore not deducted. We anchor on $6.24, the median of 2022 to 2025, rather than the 2025 peak, because 2025 includes a very strong cash year and only part-year contributions from $631.6 million of 2025 acquisitions. Earlier years are excluded because they predate the current pricing and acquisition-driven earnings level. Because acquired intangibles (about $719 million of finite-lived intangibles, net) wear out, we do not let growth rates run at the historical pace. Growth. Owner earnings per share grew 18.5% in 2025. We do not carry that forward: the base case starts at 4% in year 1, well below the trailing rate. What we credit is what the company has repeated for a decade: pricing that offset inflation and 2025 tariff costs (stated in the filing), a steady stream of tuck-in acquisitions funded from its own cash flow, and share count reduced from about 96.9 million to 86.6 million diluted shares. Owner earnings per share compounded roughly 10% a year from 2016 to 2025, so 4% for five years and 2.5% for the next five is conservative. Nothing is credited for new-product launches, share gains, margin expansion or a construction upturn, because none of these is secured. After year 10 we assume earnings hold flat, on the strength of an installed base and long-standing brands (Von Duprin dates to 1908, Schlage to 1920), with no further growth. Base case: about $135 per share. Bear case: about $52 per share. Earnings fall to about $5.00 (roughly the 2021-2022 level) and stay there for ten years, then erode 10% a year as the acquired brands and intangibles lose value with no replacement. The named pressures are tariff exposure (the company sources roughly 20-25% of cost of goods sold from China and a similar share from Mexico), $1.98 billion of debt, and repeated large acquisitions that add amortizing intangibles. Bull case: about $189 per share. Earnings stay at the 2025 level of $7.87 and grow 6% a year for five years and 3% for five more, still below the record of the past decade, then hold flat. We have not subtracted the company's debt separately, because owner earnings are already after interest paid; leverage is instead reflected in the bear case. The margin-of-safety price is about $80 per share, reflecting a stable business with moderate leverage and meaningful acquisition and tariff risk. What would make this wrong: a sustained decline in commercial and institutional construction and renovation, tariffs that cannot be passed through in price, or a large acquisition that fails to earn its cost. Note that first-half 2026 operating cash flow of $299.7 million was slightly below the $314.2 million of the first half of 2025 despite higher revenue; we treat this as a signal to watch and it does not change our level. We could not verify from the filing what share of revenue comes from new construction versus replacement.