The security company ADT recently announced that it is beginning a long-term partnership with Google. ADT offers security, fire protection, and other alarm monitoring products and services. The company helps people over the U.S. protect their homes and businesses.
Google and ADT plan to launch the joint professional install platform. The stock will likely begin to see material financial benefits from this partnership in 2022. In addition, Google stated that it would make a $450 million equity investment in ADT. This announcement increased experts’ confidence in the companies’ commitment to the alliance.
ADT has already attracted Goldman Sachs’s attention thanks to its solid Q2 performance and the potential tailwinds. The increasing importance of suburbanization and home security due to coronavirus pandemic could act as tailwinds that bolster growth in free cash flow (FCF). However, partnership with Google is another benefit for strong FCF.
What Do Analysts Say?
Analyst George Tong from Goldman Sachs thinks that ADT is uniquely positioned to ride out the coronavirus pandemic and macro related headwinds. People’s defensiveness and the importance they put in home security is steadily growing.
Furthermore, ADT’s Q2 report revealed that revenue, free cash flow, and margins surpassed initial expectations thanks to improved subscriber acquisition cost efficiency and reduced attrition rates.
The company’s residential monitoring business is solid, comprising 80% of its total revenue. Additionally, ADT’s improved attrition and subscriber acquisition efficiency only strengthened the stock further.
Moreover, Tong believes that the company’s consumer financing program has the potential to drive upsell, thus contributing to better FCF trends. The stock’s FCF performance will rise along with commercial growth, as retail customers pay a higher proportion of their installation costs upfront.
Analysts also expect the near-term FCF to benefit from improving subscriber acquisition cost, efficiency, and surging retention rates. It’s proved to be more cost-effective to retain a customer than to get a new one.
Tong thinks that ADT a strong-buy. He set a $17 price target for the stock. Shareholders could gain 45% over the year with this price target.