Morgan Stanley Previews ADT's Earnings, Raises Price Target

Nigel Coe of Morgan Stanley previewed

upcoming fourth quarter results. "ADT's 4Q results continued to show some signs of operational improvement, and we were particularly encouraged by 0.4x sequential decline in SAC creation multiple and 100 basis points year over year EBITDA margin expansion (despite 70 basis points dilution from Protectron), which lend some weight to the efficiency measures put in place over the last year," Coe wrote. However, according to Coe, EBITDA margin is expected to come in "flattish" as a result of headwinds from the company's Commercial market investments and Protectron dilution. Coe also adds that a weak subscriber growth and cash generation are areas of concern. The analyst expects net subscriber growth (excluding Protectron) was still negative by 20,000 quarter over quarter. In addition, management's 2 percent to 3 percent core RMR growth guidance for fiscal 2015 leads the analyst to expect another year of "modest decline" in subscribers. Shares are Equal-weight rated with a price target raised to $36 from a previous $35.