ADT (ADT)

Security technology and services company ADT (NYSE:ADT) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 4.8% year on year to $1.27 billion. The company expects the full year’s revenue to be around $5.13 billion, close to analysts’ estimates. Its non-GAAP profit of $0.21 per share was 8.9% above analysts’ consensus estimates.

Company Overview

Founded in 1874 and headquartered in Boca Raton, Florida, ADT (NYSE:ADT) is a provider of security, automation, and smart home solutions, offering comprehensive services for home and business protection.

Some consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.

ADT's primary competitors include Ring (owned by Amazon NASDAQ:AMZN), Honeywell (NYSE:HON), Nest Secure (owned by Google NASDAQ:GOOGL), Xfinity Home Security (owned by Comcast NASDAQ:CMCSA), and private companies Vivint Smart Home, SimpliSafe, Brinks Home Security, and Frontpoint.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, ADT’s demand was weak and its revenue declined by 1.1% per year. This wasn’t a great result and suggests it’s a low quality business.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. ADT’s recent performance shows its demand remained suppressed as its revenue has declined by 4.8% annually over the last two years.

This quarter, ADT reported modest year-on-year revenue growth of 4.8% but beat Wall Street’s estimates by 1.9%.

Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months. Although this projection implies its newer products and services will spur better top-line performance, it is still below the sector average.

ADT’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 24.5% over the last two years. This profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

In Q1, ADT generated an operating profit margin of 25.2%, up 9 percentage points year on year. This increase was a welcome development and shows it was more efficient.

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.

ADT’s EPS grew at an unimpressive 6.8% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 1.1% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.

In Q1, ADT reported EPS at $0.21, down from $0.22 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 8.9%. Over the next 12 months, Wall Street expects ADT’s full-year EPS of $0.95 to shrink by 9.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

ADT has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 15.7% over the last two years, better than the broader consumer discretionary sector.

ADT’s free cash flow clocked in at $422 million in Q1, equivalent to a 33.3% margin. This result was good as its margin was 25.9 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 trump fluctuations.

Over the next year, analysts predict ADT’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 20% for the last 12 months will decrease to 16.6%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

ADT historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.6%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

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. ADT’s ROIC has increased over the last few years. This is a good sign, and we hope the company can continue improving.

ADT reported $4 million of cash and $7.82 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 $2.60 billion of EBITDA over the last 12 months, we view ADT’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $492.6 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.

It was encouraging to see ADT beat analysts’ revenue and EPS expectations this quarter. Full-year guidance was also maintained. Zooming out, we think this was a decent quarter. The stock remained flat at $7.91 immediately after reporting.

Updated: July 9, 2025 at 11:30 PM EDT

Before investing in or passing on ADT, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

ADT’s business quality ultimately falls short of our standards. To kick things off, its revenue has declined over the last five years. And while its impressive operating margins show it has a highly efficient business model, the downside is its number of customers has disappointed. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

ADT’s P/E ratio based on the next 12 months is 10.1x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $9.24 on the company (compared to the current share price of $8.29).