The growing adoption of smart homes makes the prospects bright for smart security systems. Home security devices are also experiencing evolution due to AI and IoT technologies. The home security system market is expected to reach $84.55 billion in the next five years, registering a CAGR of 8.5%.

Home improvement company ADT Inc. (ADT - Get Rating) looks well-positioned to capitalize on the growing usage of smart home devices. The company offers security, automation, and smart home solutions to consumers and businesses in the United States.

For the full year 2022, ADT expects total revenue between $6.20 billion and $6.40 billion, while adjusted EBITDA is expected to come between $2.34 billion and $2.44 billion. The company expects adjusted free cash flow between $550 million and $625 million for the same period.

The stock has gained 9.1% over the past year and 48.8% over the past six months to close its last trading session at $9.21. It has gained 23% over the past three months. It is trading higher than the 50-day moving average of $9.05 and the 200-day moving average of $7.78.

Here are the factors that could affect ADT’s performance in the upcoming months:

Strong Financials

For the fiscal third quarter that ended September 30, ADT’s total revenue increased 21.8% year-over-year to $1.60 billion. Adjusted EBITDA rose 11.9% from the prior-year quarter to $620 million. Adjusted net income and adjusted net income per share came in at $83 million and $0.10, up substantially from their negative year-ago values, respectively.

Sound Profitability

ADT’s trailing-12-month gross profit margin of 68.56% is 93.4% higher than the industry average of 35.46%. Its trailing-12-month EBITDA margin and levered FCF margin of 37.65% and 11.88% are 238.9% and 805.7% higher than the industry averages of 11.11% and 1.31%, respectively.

Favorable Analyst Estimates

The consensus EPS estimates of $0.22 and $0.13 for the quarters ending December 2022 and March 2023 indicate significant year-over-year increases from the year-ago values of negative $0.03 and $0.01, respectively. The consensus revenue estimate for the same periods of $1.62 billion and $1.69 billion reflect 17.4% and 9.6% year-over-year rises.

Analysts expect ADT’s EPS and revenue for the fiscal year 2022 to increase 304% and 20% from the prior year to $0.51 and $6.37 billion, respectively. Moreover, Street expects EPS and revenue for the fiscal year 2023 to improve 49% and 7.6% year-over-year to $0.76 and $6.85 billion, respectively.

POWR Ratings Reflect Promising Prospects

ADT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ADT has a Growth grade of A, in sync with improving financials. The stock also has a B grade for Sentiment, consistent with favorable analyst estimates.

In the 59-stock Home Improvement & Goods industry, it is ranked #5.

Click here to see the additional POWR Ratings for ADT (Value, Momentum, Stability, and Quality).

View all the top stocks in the Home Improvement & Goods industry here.

Bottom Line

The growth of the home security market should benefit ADT. Moreover, the company posted impressive financials in the last reported quarter. With analysts expecting significant top and bottom-line upsides, the stock might be a solid buy now.

How Does ADT Inc. (ADT) Stack up Against Its Peers?

While ADT has an overall POWR Rating of B, one might consider looking at its industry peers, HNI Corporation (HNI - Get Rating) and Bassett Furniture Industries, Incorporated (BSET - Get Rating), which have an overall A (Strong Buy) rating.

ADT shares were unchanged in premarket trading Friday. Year-to-date, ADT has gained 11.49%, versus a -18.56% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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