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A Secure ADT Is Getting Ready to Leave the Doghouse

ADT disappointed on its last year-over-year quarterly revenue and the stock was punished down to a 52-week low of $27.93. Eventually shares recovered and moved well above the 50-day exponential moving average (EMA).

As the next chart demonstrates, shares now appear to be mounting an assault on the 200-day EMA.

ADT Chart
ADT
data by YCharts

If shares penetrate the 200-day EMA at $35.12 and close above that level, this may be an auspicious confirmation of my thesis that this dividend-paying "dog" has left its doghouse and is moving higher with staying power.

Speaking of dividends, the company last paid a quarterly dividend of 20 cents on April 28. On an annualized basis that's a 2.32% yield, which is higher than the current average yield on the S&P 500.

ADT will report its current quarterly financial results the week of July 28. Expectations for revenue are slightly higher than breakeven and earnings guidance suggests the same. With a class-action lawsuit hanging over its head I anticipate cautious guidance for the remainder of 2014.

That doesn't mean ADT isn't a profitable business. For the current fiscal year ending Sept. 30 I expect the company's revenue to reach or exceed $3.4 billion. That would be close to a 3% increase from 2013.

The company's balance sheet includes about $4.7 billion of total debt, but as of March 28 it also had total cash of $332 million. Its trailing 12-month operating cash flow of over $1.6 billion and levered free cash flow of nearly $250 million will help with debt maintenance and its modest 34% payout ratio.

With a $6 billion market cap and shares selling at only 17 times forward earnings, I expect ADT to eventually be acquired. This would offer new leadership who can capitalize on this 140-year-old security company and its lucrative operations.

Patient investors may have an opportunity to buy shares below $34 while the stock is still a bargain.

At the time of publication the author had no positions in any of the companies mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


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Marc Courtenay is a financial research analyst and the founder of Advanced Investor Technologies LLC as well as the publisher and editor of www.ChecktheMarkets.com.
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