The bullish case for security provider ADT Inc (NYSE: ADT) can no longer be justified, as homeowners are just as likely to buy a do-it-yourself system as they are an ADT product, according to Morgan Stanley.
Morgan Stanley's prior bullish stance was based on the assumption DIY home security companies like Ring and Nest wouldn't disrupt ADT's growth, Kaplan said in the Monday downgrade note. (See the analyst's track record here.)
The research firm's recent "AlphaWise" survey points to a flaw in the thesis, as 15 percent of existing Ring customers and 12 percent of Nest customers switched from ADT over the past year,
ADT's advantage of offering higher levels of customer service and professional installation are now being called into question, as the survey found ADT's market share could have fallen 4 percent year-over-year, with a 2-percent margin of error, Kaplan said. While Morgan Stanley acknowledges its survey of 70 people is a "small sample," it may confirm "directional trends" that home security buyers are not as "sticky to the professional installation ecosystem," the analyst said.
Looking forward, the professional security market is likely to grow at a 3-4-percent compounded annual growth rate over the next four years, but ADT could show slower growth, according to Morgan Stanley.
The rise of DIY competitors could result in ADT showing an organic revenue CAGR of just 1.5 percent over the coming four years, which marks a decrease from prior estimates of 3 percent, Kaplan said.
ADT shares were down 6.28 percent at $5.97 at the time of publication Monday.
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Latest Ratings for ADT
|Nov 2018||Initiates Coverage On||Outperform|
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