Hot stocks to watch this afternoon: GPRO, HAS, MU >>> READ MORE

Door Knobs Are on the Way Out – Buy the New Lever Trend

New legislation in Vancouver is forcing new homes to switch from knobs to levers

    View All  

Starting in March 2014, all new housing in the city of Vancouver will be required to install levers on all doors and faucets instead of knobs. An aging population has forced the city to act in the best interests of its residents. Levers are much easier to use than doorknobs especially if you suffer from arthritis. While existing homes that have door knobs are grandfathered, the doorknob’s days are numbered.

Here at InvestorPlace we thought it would be interesting to find out who some of the winners and losers are in this hardware evolution. A seemingly innocuous decision (which has Vancouverites divided) will have ongoing repercussions for many years as even those grandfathered in switch to levers because of a severe doorknob shortage. It’s not exactly a travesty, but this will be interesting to watch play out.

The Players

A quick survey of Home Depot’s (HD) website reveals that the company has the same five major suppliers for both doorknobs and levers. You’ll also notice that the five suppliers have 1,042 door levers for sale at Big Orange compared to 972 door knobs. The trend to levers was underway before Vancouver flexed its municipal powers — it’s the only city in Canada with its own building code — so this evolution was going to happen with or without the municipality’s help.

The five names on the list: Schlage, Kwikset, Baldwin, Design House and Weslock.

The biggest in terms of products available at HD, Schlage is owned by Allegion plc (ALLE), formerly the smallest of Ingersoll-Rand’s (IR) operating segments; it was spun-off Dec. 2 with IR shareholders receiving one share in Allegion for every three shares in the parent. The stand-alone business has annual revenue of $2 billion and approximately $400 million in EBITDA.

Shlage’s mechanical lock business, which includes door levers, sees long-term revenue growth of at least 5% annually. Its Schlage brand is No. 1 in market share for both commercial and residential markets here in North America. With a good balance sheet, strong free cash flow and a fragmented industry, expect Allegion to go on a buying binge.

Kwikset was part of Stanley Black & Decker’s (SWK) security segment, the smallest of SWKs three divisions. However, last December, Phil Falcone’s Spectrum Brands (SPB) acquired SWKs Hardware & Home Improvement Group (HHI) for $1.4 billion. It acquired several brands along with Kwikset including Baldwin, one of the big five from above.

SWK wanted to focus on the commercial market, and Spectrum was interested in adding another operating segment to go along with its global batteries & appliances, home & garden and global pet supplies’ divisions. HHI wasn’t just the addition of another operating segment — it’s a game changer. The acquisition increased Spectrum’s annual revenue by 25%, becoming the company’s second-biggest revenue generator.

Design House is a privately owned Wisconsin company that covers several different categories of the home market including door knobs and levers. Relative to either Kwickset or Schlage, it’s a small business, despite revenues exceeding $75 million. Weslock is also privately owned and based in Tulsa, Oklahoma. Beyond that, I’ve been able to find little about either company. It’s possible one or more could be acquired by Spectrum or Allegion in the future.

So, who are the winners and losers?

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC