Frontdoor A Compelling Digital Transformation Story, Says Bullish Raymond James

The ongoing digital transformation at Frontdoor Inc FTDR will expand its total addressable market fourfold to $400 billion, according to Raymond James. 

Frontdoor’s high EBITDA margins and asset-light model are expected to drive healthy cash flow generation and organic growth, while the company seems poised for share gains and to generate 8-9 percent revenue growth over the medium term, in the sell-side firm's view. 

The Analyst

Justin Patterson initiated coverage of Frontdoor with an Outperform rating and $42 price target.

The Thesis

Frontdoor already addresses a TAM of around $100 billion in the home repair space and is now expanding to the broader home services market, which represents a TAM of about $400 billion, Patterson said in the Thursday initiation note. (See his track record here.) 

This opportunity should enable the company to sustain more than 8-percent revenue growth over the medium term, the analyst said. 

With more than 2 million customers, relationships with 16,000 contractor firms, coupled with over 45 years of customer and transaction data, Frontdoor has the right assets and leadership for digital transformation, Patterson said. 

Around 66 percent of revenue comes from renewals, and Frontdoor has a high retention rate of about 75 percent, enabling the company to consistently generate an EBITDA margin in the high-teens to low-20 percent range and annual FCF of over $100 million, according to Raymond James. 

Price Action

Frontdoor shares were up 0.76 percent at $34.54 at the time of publication Thursday. 

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Photo courtesy of Frontdoor.