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ADT: a 'Safe' Housing Bet, With a Hint of Apple's iPhone, Buffett

To continue expanding ADT Pulse, Gursahaney says he will look at mergers and acquisitions, especially in the software, services and mobility spaces that could be a benefit to the platform's overall suite of products. "Being the market leader in the residential security space, we see everything that is available," says Gursahaney. In 2010, ADT's bought Broadview Security -- the owner of competitor Brink'S BCO (BCO) home security business -- for $2 billion acquisition.

The ADT Pulse push is is incurring in part as some of ADT's existing "moat" becomes threatened by far-larger cable and telecom giants that are now building out cutting-edge home security products, including Time Warner Cable (TWC - Get Report). While Gursahaney acknowledges the competition, he notes that for investors, ADT has a first-mover advantage and it is the only pure-play public company with exposure to home security and the industry's next tech-enabled suite of products.

Gursahaney's pitch on the stability and growth prospects of ADT meshes with initial stock analysis of the offering. Morningstar IPO analyst James Krapfel highlights ADT as the newly traded S&P 500 member to buy over Kraft Foods (KRFT), citing its 10% valuation discount. Krapfel gives ADT a $40 a share price target and highlights ADT's strong market position and ability to make new subscribers additive to profits and cash flow within one subscription cycle.

Although ADT is spinning off from Tyco -- once a conglomerate in the Dow Jones Industrial Average before a string of spinoffs that's culminated in ADT's listing -- Krapfel says the company is also equipped to ward off far larger media conglomerates with its Pulse platform.

"With ADT Pulse, ADT is at the forefront of the industry move to interactive service offerings such as the ability to remotely lock and unlock doors, control thermostats and lighting, and conduct video surveillance," says Krapfel in a Monday note to clients analyzing new listings. "This should put the company increasingly head-to-head with the likes of Comcast (CMCSA - Get Report) and AT&T (T - Get Report), which are pushing their own interactive home monitoring solutions, but we think ADT should come out on top," he adds.

For investors looking for a stable housing-themed investment with a hint of Warren Buffett's "moat" approach -- not to mention his major bet on the U.S. housing market -- ADT's existing subscriber strength, its growth rates and the company's pure-play exposure to residential security make it a compelling investment. Meanwhile, as the company builds on its Pulse platform to grow new subscribers, ADT is also a way for investors to gain safe exposure to the technological innovations of the Apple iPhone revolution occurring inside an increasing number of U.S. homes.

-- Written by Antoine Gara in New York
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T $36.47 0.00%
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