The ADT Corporation (ADT, Financial) is a provider of electronic security, interactive home and business automation and related monitoring services in the U.S. and Canada (about 6.5 million residential and small business customers).
ADT Pulse
The company’s electronic security and home/business automation offerings involve the installation and monitoring of residential and business security and premises automation systems designed to detect intrusion, control access and react to movement, smoke, carbon monoxide, flooding, temperature and other environmental conditions and hazards, as well as to address personal emergencies, such as injuries, medical emergencies or incapacitation.
Through the introduction of ADT Pulse in 2010, the company's customers can lock and unlock their doors, arm and disarm their security system, control their appliances and lighting, and adjust their thermostat or view real-time video from cameras covering different areas all from their smartphone. Depending on their service plan, practically all can remotely monitor and manage in their homes and small business environments. The company continues to add new features and capabilities to its Pulse platform to ensure that the product continues to be the best home security and automation solution.
Strategies
Expanding its channels, improving sales force effectiveness and strengthening its strategic marketing are strategies being considered to grow in actual markets. With respect to new markets or the ones that are not penetrated so much, ADT plans to invest in growth platforms, with focus on market for small businesses and penetration of residential markets. The company´s estimations about those markets indicate that was about $13 billion in 2012, and had grown at a compound annual rate (CAGR) of about 1% to 2% over the past five years.
Returning Cash
ADT recently announced a quarterly dividend, which is scheduled for Wednesday, May 21. Investors of record on Wednesday, April 30, will be paid a dividend of $0.20 per share. This represents a $0.80 annualized dividend and a dividend yield of 2.7%, which is considered quite good to protect consumers' purchasing power.
Insider Trading
Ferber Alan, who is president of Residential at ADT Corporation, bought 1,000 shares at an average price of $28.53 on March 14, 2014, for a total transaction of $28,530.00. Alan now owns 16,973 shares in the company, valued at approximately $484,240.
P/E, Earnings and ROE
In terms of valuation, the stock sells at a trailing P/E of 15.5x, trading at a discount compared to the industry. Earnings per share (EPS) decreased in the most recent quarter compared to the same quarter a year ago. The company reported $0.43 EPS for the quarter, missing the Thomson Reuters consensus estimate of $0.49 by $0.06. Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. Let´s compare the current ratio with the peer group in the next table:
| Ticker | Company Name | ROE (%) |
| ADT | The ADT Corp | 9.74 |
| ECOL | US Ecology, Inc | 13.89 |
| CTAS | Cintas Corporation | 14.33 |
| AXR | Amrep Corporation | -3.91 |
As we can see, the firm has a higher ROE than Amrep Corporation (AXR, Financial) but is well below the one registered by US Ecology Inc. (ECOL, Financial) and Cintas Corporation (CTAS, Financial).
Final Comment
As outlined in this article, the well-recognized and reliable brands and products like ADT Pulse will create a range of opportunities for ADT. Additionally, we describe strategies that will speed company´s customer base. Moreover, dividend payment affirms its commitment to maximize shareholder wealth. Finally, insider trading makes me feel bullish about this company’s future profitability.
According to Yahoo Finance, the estimated one-year target share price is $42.5, so if you buy shares at current market price ($29.1), your return from price appreciation would be 46%. In addition, you have to consider any cash flow received by the asset. So for holding the stock one year, you'll be paid a dividend of 20 cents per share each quarter, totalizing $0.8 at the end of the year. If we divide this number by current price per share, we obtain the dividend yield, which is the other component of the return on an investment for a stock, and in this case is 2.7%. So the total expected return for investing in ADT is 48.7%, which is a tremendous stock return.
I would recommend investors to consider adding the stock for their long-term portfolios. Hedge fund gurus have also been active in the company in fourth quarter 2013. Gurus like Paul Tudor Jones (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), Larry Robins and recently Dodge & Cox have also invested in it.
Disclosure: Damian Illia holds no position in any stocks mentioned.
