Resideo (REZI)

Home automation and security solutions provider Resideo Technologies (NYSE:REZI) announced better-than-expected revenue in Q4 CY2025, with sales up 2% year on year to $1.90 billion. On top of that, next quarter’s revenue guidance ($1.88 billion at the midpoint) was surprisingly good and 4.6% above what analysts were expecting. Its non-GAAP profit of $0.50 per share was 4.5% below analysts’ consensus estimates.

Company Overview

Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.

Traditionally, building materials companies have built competitive advantages with economies of scale, brand recognition, and strong relationships with builders and contractors. More recently, advances to address labor availability and job site productivity have spurred innovation. Additionally, companies in the space that can produce more energy-efficient materials have opportunities to take share. However, these companies are at the whim of construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of building materials companies.

Competitors in the home comfort, security, and smart home solutions market include Honeywell (NASDAQ:HON), Johnson Controls (NYSE:JCI), and Alarm.com (NASDAQ:ALRM)

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Resideo’s 8.1% annualized revenue growth over the last five years was decent. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Resideo’s annualized revenue growth of 9.4% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

We can better understand the company’s revenue dynamics by analyzing its most important segments, ADI Global Distribution and Products & Solutions, which are 62.4% and 37.6% of revenue. Over the last two years, Resideo’s ADI Global Distribution revenue (wholesale distribution of 450k+ products) averaged 20.6% year-on-year growth while its Products & Solutions revenue (branded offerings) averaged 3.5% growth.

This quarter, Resideo reported modest year-on-year revenue growth of 2% but beat Wall Street’s estimates by 1.2%. Company management is currently guiding for a 6.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

Resideo’s gross margin is slightly below the average industrials company, giving it less room to invest in areas such as research and development. As you can see below, it averaged a 27.9% gross margin over the last five years. That means Resideo paid its suppliers a lot of money ($72.06 for every $100 in revenue) to run its business.

This quarter, Resideo’s gross profit margin was 29.6% , marking a 1 percentage point increase from 28.5% in the same quarter last year. Resideo’s full-year margin has also been trending up over the past 12 months, increasing by 1.3 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Resideo has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.7%, higher than the broader industrials sector.

Looking at the trend in its profitability, Resideo’s operating margin decreased by 1.4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, Resideo generated an operating margin profit margin of 7.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Resideo’s flat EPS over the last five years was below its 8.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

Diving into the nuances of Resideo’s earnings can give us a better understanding of its performance. As we mentioned earlier, Resideo’s operating margin was flat this quarter but declined by 1.4 percentage points over the last five years. Its share count also grew by 15.3%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Resideo, its two-year annual EPS growth of 28.6% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q4, Resideo reported adjusted EPS of $0.50, down from $0.59 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Resideo’s full-year EPS of $2.68 to grow 13.4%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Resideo broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, we can see that Resideo’s margin dropped by 21.1 percentage points during that time. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s becoming a more capital-intensive business.

Resideo’s free cash flow clocked in at $262 million in Q4, equivalent to a 13.8% margin. This result was good as its margin was 4.1 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Resideo hasn’t been the highest-quality company lately because of its poor bottom-line (EPS) performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.3%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Resideo’s ROIC decreased by 4.8 percentage points annually each year over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Resideo reported $661 million of cash and $3.17 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $838 million of EBITDA over the last 12 months, we view Resideo’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $37 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by Resideo’s optimistic full-year EBITDA guidance, which blew past analysts’ expectations. We were also glad its EPS guidance for next quarter exceeded Wall Street’s estimates. Revenue and EBITDA in the quarter also beat. Overall, we think this was a solid quarter with many areas of upside. The stock traded up 11.1% to $39.70 immediately after reporting.

Updated: February 24, 2026 at 4:51 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Resideo’s business quality ultimately falls short of our standards. Although its revenue growth was decent over the last five years, it’s expected to deteriorate over the next 12 months and its cash profitability fell over the last five years. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its low free cash flow margins give it little breathing room.

Resideo’s P/E ratio based on the next 12 months is 11.8x. This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $45 on the company (compared to the current share price of $39.70).