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Investing.com -- Jefferies has upgraded Assa Abloy (ST:ASSAb) to “buy” from “hold,” pointing to early signs of cyclical recovery, solid earnings resilience, and an undervalued share price.
In a note dated Tuesday, analysts also raised the price target to SEK375 from SEK330, offering 24% upside from the previous close of SEK302.50.
The analysts estimated that around 30% of Assa Abloy’s business remains in a cyclical trough, down roughly 10% from peak levels.
However, improvement is underway. The Nordics, accounting for 5% of group sales, are rebounding after six rate cuts. U.S. residential, which contributes 15%, is stabilizing, with the LIRA index forecasting a 2.5% rise in renovation and repair spending by Q1 2026 despite elevated mortgage rates.
Loading docks, around 5% of group revenue, showed a rebound in orders in Q3 2024, setting up a revenue recovery in the second quarter of 2025.
Meanwhile, the U.K., contributing 3%, also remains at a cyclical low with recovery potential similar to the Nordics.
In the U.S., Jefferies expects nonresidential revenues to grow at a low- to mid-single-digit pace over the next 12 to 18 months.
The brokerage sees Assa’s specification writing activity, rather than the traditionally followed Architect Billings Index, as a more reliable leading indicator.
This outlook is supported by a 33% year-on-year increase in municipal bond issuance, which tends to precede public construction projects in education and healthcare.
Assa Abloy is also repositioning its supply chain in response to U.S.-China trade tensions.
About 10% of its U.S. cost of goods sold is sourced from China, but the company is shifting production to Southeast Asia.
This move gives it more flexibility than peers like Allegion (NYSE:ALLE), which have fewer relocation options, and helps preserve margin while matching industry pricing.
Jefferies highlighted Assa’s margin resilience, supported by its aftermarket-heavy model, roughly two-thirds of revenue, and asset-light final assembly operations.
Its Q2 EBIT margin is projected at 16%, 40 basis points ahead of consensus. For 2025 and 2026, Jefferies estimates EBIT margins of 16.2% and 16.8%, respectively, both above consensus.
The analysts also pointed to continued momentum in mergers and acquisitions. After contributing 8% to revenue in each of the past two years, M&A is expected to add over 5% in 2025.
The company has already completed nine acquisitions this year. Jefferies also flagged a potential divestiture of the non-core Pfister plumbing unit, which could be valued between $250 million and $400 million.
With shares trading at 15x 2025 EBITA, below the historical range of 14.5x to 20x and at a 15% discount to high-quality peers, Jefferies sees room for re-rating.