ADT Corp (ADT): Can This Stock Offer Security to Your Portfolio?

Management’s strategy around inorganic growth is commendable and has paid off handsomely in the last year. The company acquired Chemguard and Visonic last year, both of which have performed beyond expectations and increased Tyco’s presence in oil and gas verticals and wireless technology platforms, respectively. Based on full year EPS guidance in the range of $1.80-$1.85, it is currently trading at 17 times earnings, a highly justified valuation.

More from the industry

Brink’S Co (NYSE:BCO) delivered strong results in the first quarter, beating Street estimates with an EPS of $0.35 per share. A one-time robbery incident hurt profitability as Brink’S Co (NYSE:BCO) had to reimburse customers for stolen diamonds on a plane attack at Brussels Airport. North America, a region that is fiercely competitive, underperformed for the company. As a result, the management lowered its margin outlook in the region to 2%-3% from 4%. On the brighter side, performance in Latin America was commendable as profits were much stronger than anticipated. The company is doing right by focusing on achieving long-term success on essential parameters like cost management, productivity, and solution-selling.

Final take

The home security industry is becoming increasingly competitive, which is disrupting demand for industry leaders like ADT Corp (NYSE:ADT). Now, summer is an ideal season for security services providers because a lot of Americans will go on at least one vacation in the season. This increases their vulnerability to burglary, which fuels the demand for proper security. As such, ADT Corp (NYSE:ADT) is looking to capitalize on this spurt in demand.

One of the major things to watch for the remaining half of the year is capital spending, which is poised to increase as a result of higher investment in Pulse penetration in the dealer channel. As such, the challenge would be maintaining reasonable cash flow for the year. In spite fierce competition and internal challenges, I would recommend a “buy” for this stock because it is just beginning a great selling season with innovative products that have new and desirable features.

The article Can This Stock Offer Security to Your Portfolio? originally appeared on Fool.com and is written by Mihir Mehta.

Mihir Mehta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mihir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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