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04/15/2015 8:00 am EST
Our latest spotlight recommendation is the leading player in a market with a long runway for future growth; the company claims a leading 25% share of the highly fragmented and lightly penetrated market for home security and automation, notes Richard Moroney, editor of Dow Theory Forecasts.
ADT (ADT) provides electronic-security services to 6.7 million homes. Its services detect intrusions, smoke, carbon monoxide, flooding, and medical emergencies.
All but 8% of revenue is recurring, giving management high visibility regarding its stable, if unspectacular, growth.
Sales have risen in each of the past 13 quarters, including 6% in the December quarter, the strongest growth so far in ADT’s second act as a publicly traded company.
However, the market has plenty of space to accommodate several big players. Just 19% of US homes have security systems, compared to 75% with high-definition TV and 83% with internet.
About 71% of ADT’s new residential customers are signing up for Pulse, a remote monitoring and automation system launched in 2010. ADT Pulse taps into the smart-everything craze and provides additional services that increase average revenue per user.
ADT also controls the largest slice—13%—of the $2.4 billion small-business market, expected to grow 3% to 4% in 2015.
ADT expects recurring revenue to rise 5% to 6% in fiscal 2015 ending September. The consensus estimate targets per-share-profit growth of 2% in the March quarter and 4% in fiscal 2015, targets that seem unduly low.
The company raised its dividend 5% in January. ADT also repurchased enough shares to reduce its stock count by 12% in 2014.
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