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).
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.