ADT Tumbles On Earnings Losses, But Analysts Remain Bullish

ADT Inc ADT shares crashed 13 percent Tuesday after the company reported a net loss of $149 million in the fourth quarter, missing consensus analyst estimates. The adjusted earnings per share loss was 4 cents, well below consensus expectations of a 12-cent per-share profit.

Despite a 7-percent increase in revenue compared to a year ago, ADT reported a full-year 2018 net loss of $609 million. The company guided for 2019 revenue of between $4.9 billion to $5.1 billion, ahead of the average analyst forecast of $4.9 billion.

Knee-Jerk Reaction

ADT's stock plummeted, but Bank of America analyst Gary Bisbee said the sell-off is short-sighted. Bisbee said 2019 profit guidance was on the light side due to heavy investments in the business, but revenue growth is trending ahead of expectations.

“While competitive concerns will linger, we believe the combination of an undemanding valuation, deleveraging, and healthy FCF growth makes ADT attractive here,” Bisbee wrote in a note.

With short percent of float above 30 percent, Bisbee said ADT will likely remain a volatile battleground stock in the near-term. Bank of America has a Buy rating and $10 price target for ADT stock.

RBC’s Take

RBC analyst Seth Weber said ADT’s core business is strong, and the investments hurting profitability are setting the company up for success in the long term. Weber said that, beyond the headline loss numbers, there were several positive data points in the quarter, including declining customer attrition and rising free cash flow.

“We shave estimates/target but remain constructive with rising free cash supporting growth opportunities and attractive valuation,” Weber wrote.

He said the stock offers investors a favorable risk-reward skew in the long-term. RBC has an Outperform rating and $11 price target for the stock.

Following Tuesday’s sell-off, ADT shares are down 36.7 percent overall in the past year. The stock traded at $6.57 per share Tuesday afternoon.

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