ADT (ADT) Q3 Earnings Decline Expected: Should You Care?

in EARNINGS/INVESTING IDEAS by

ADT Inc. (NYSE:ADT) is scheduled to report Q3 earnings results on November 12, 2019. The company is expected to report earnings of $0.20/share on revenue of $1.271 billion. The consensus earnings per share (EPS) of $0.20/share is based on a poll of 6 analysts and represents a decline of -20.2% over the same quarter last year when the company reported earnings of $0.26/share.

The revenue forecast of $1.271 billion based on a poll of 6 analysts implies a year-over-year (YoY) growth of 10.7%. Last year the company reported $1.148 billion in revenue for the quarter.

Expected to report EPS decline of -$0.05/share for Q3, 2019
Metric Expected Prior Year YoY Change
Revenue $1,271.04 $1,148.00 10.7%
EPS $0.20 $0.26 -20.2%

Earnings Call Trends

Management has been good at managing analyst expectations historically with perfect record over the last 5 tracked quarters of exceeding earnings guidance.

Analyst Expected vs Reported EPS
Quarter Expected Reported Surprise Result
Q4, 2018 $0.13 $0.13 6.7% Beat
Q3, 2018 $0.25 $0.26 4.7% Beat
Q2, 2018 $0.12 $0.15 25.6% Beat
Q1, 2018 $0.27 $0.34 24.2% Beat
Q4, 2017 $0.09 $0.12 31.8% Beat

Unfortunately the earnings beats have not satisfied investors over the last three quarters. After the last earnings report for the period ending June 30, 2019, the stock price reacted by falling by -7.1%. In the following table, we summarize the company’s stock price movements after earnings releases.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
2019-08-06 $5.61 $5.21 -7.1% Decline
2019-05-07 $6.99 $6.18 -11.6% Decline
2019-03-11 $7.38 $6.57 -11.0% Decline
2018-11-07 $7.32 $8.10 10.7% Increase

The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report.

Fundamentals And Technical Analysis

ADT is currently trading at $7.73/share, down -2.8% for the day. The company is trading at approximately 92.1% of its 52 week high of $8.39/share. The company’s stock price is up 38% since the last earnings report and up 0.4% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 64.08 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.

The current share price implies a price-to-earnings (P/E) multiple of -10.7x and a forward P/E multiple of 8.5x. ADT’s current share price also implies a price-to-book (P/B) multiple of 1.5x. The following table summarizes some other key fundamental ratios:

Data as of November 11, 2019
Metric Value
Last Fiscal Period FY2019.Q2
Period End Date June 30, 2019
Stock Price (Current) $7.73
P/E Ratio -10.7x
P/E Ratio (Fwd) 8.5x
PEG Ratio 0.8
Total Debt to Capital (%) 62.5%
Levered Free Cash Flow $1.068 billion
Enterprise Value / EBITDA 6.7x

Company Profile: ADT Inc.

ADT Inc. is a mid-cap stock with a market capitalization of $5.798 billion and a total enterprise value of $15.705 billion. The company operates in the Industrials sector and Commercial Services & Supplies industry.

ADT Inc. provides security and automation solutions for homes and businesses in the United States and Canada. It provides a range of fire detection, fire suppression, video surveillance, and access control systems to residential, commercial, and multi-site customers. The company primarily offers monitored security and automation solutions, including the installation and monitoring of security and premises automation systems designed to detect intrusion, control access, sense movement, smoke, fire, carbon monoxide, flooding, temperature, and other environmental conditions and hazards; and address personal emergencies such as injuries, medical emergencies, or incapacitation.

ADT also provides interactive solutions that allow customers to use their smart phones, tablets, and laptops to arm and disarm their security systems, adjust lighting or thermostat levels, view real-time video of their premises, and program customizable schedules for the management of a range of smart home products. In addition, the company offers professional monitoring of third-party devices by enabling other companies to integrate solutions into its monitoring and billing platform. It provides its products under the ADT, ADT Pulse, ADT Always There, Protection 1, and Protectron names.

ADT Inc. operates through a network of approximately 240 sales and service offices, 12 underwriter laboratories listed monitoring centers, 7 customer and field support locations, 2 national sales call centers, and 2 regional distribution centers.

The company was formerly known as Prime Security Services Parent, Inc. and changed its name to ADT Inc. in September 2017. ADT Inc. was founded in 1874 and is headquartered in Boca Raton, Florida.

Expertise: Valuation, financial statement analysis. Matt Hogan is also a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock. His work is frequently published at InvestorPlace, Benzinga, ValueWalk, AAII, Barron’s, Seeking Alpha and investing.com. Matt can be reached at matt@finbox.io or at +1 (516) 778-6257.

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