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Will ADT Stock Add Some Security to Your Portfolio?

·3 min read

It is always wise to be prepared for the unexpected, especially when it comes to security and protection, which is where ADT (ADT) excels.

ADT provides security and interactive automation solutions for residential, small businesses, and commercial customers primarily in the United States and Canada. ADT has provided security system networks for over 140 years. With a customer base of over 6 million people, ADT is the biggest home security brand in the U.S.

With such a notable background in its industry, investors might want to own ADT stock in their portfolio because security and protection services are never going out of style.

Stock Performance

Taking a look at the year to date performance of ADT, we can see the stock is down 10% while industry rival Alarm.com (ALRM) is down 21%. Despite ADT’s stock being down this year, it has outperformed the S&P 500.

What is also attractive about ADT compared to Alarm.com and others, is that the stock is trading under $10 a share at roughly $7.36 per share at the moment. Plus, the average Zacks price target offers 22% upside to its current levels.

ADT most recently posted an earnings surprise of 20% when it reported Q2 earnings of $0.06 a share. This led to the stock spiking 9% to hit the $8 a share mark for the first time since last March.

Zacks Investment Research
Zacks Investment Research

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Valuation & Estimate Revisions

The company’s earnings estimate revisions are also trending higher, making ADT an intriguing investment right now. 

ADT has a forward P/E of 44X, but earnings estimates are rising for the current quarter. The Zacks consensus for third quarter earnings is $0.06 a share. This would reflect an 186% increase from Q3 earnings a year ago.

Full year earnings are set to soar from an adjusted loss of -$0.25 per share to +$0.17 a share. Top line growth is also expected to continue for ADT, with FY22 sales projected to climb 18% and another 6.5% in FY23 to $6.64 billion.

Another valuation metric that supports ADT being undervalued is its Price to Cash Flow or P/CF. Some investors point to the P/CF as a better way to gauge a company's valuation than the P/E ratio because the net income of the cash flow portion adds depreciation and amortization back in since these are not cash expenditures.

Taking a look at ADT’s P/CF we can see it points to the stock offering value compared to its peers at 4.1 vs. its industry average of 11.6.

Bottom Line

With sales and earnings estimates trending in the right direction, it might be time to look at adding a position in ADT to your portfolio. ADT’s Security and Safety Services industry ranks in the top 24% out of 252 Zacks industries. ADT’s positive earnings revisions help it land a Zacks Rank #2 (Buy) right now. And ADT has an overall “A” VGM grade.

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ADT Inc. (ADT) : Free Stock Analysis Report
Alarm.com Holdings, Inc. (ALRM) : Free Stock Analysis Report
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Zacks Investment Research