Can ADT Corp (ADT) Secure a Win for Your Portfolio?

Expected fully diluted share count for fiscal 2013 should be around 230 million, down from 236 million last fall. Top-line revenue growth will probably remain in the high single digits for the next couple of years, but the bottom line should grow much faster as the Pulse line take rates continue to rise, acquisitions become streamlined into operations, and the company updates its infrastructure.

If the company can hit $1.56 billion in annual EBITDA, that gives it a current EV/EBITDA of 8.5. That would put it substantially under parent company Tyco’s 12.25 EV/EBITDA.

The housing rebound does spell opportunity for ADT, but it also opens up the field to more competition. ADT’s growth is hinged upon the company’s ability to continue attracting customers to the home automation service. Cable companies such as Comcast Corporation (NASDAQ:CMCSA) are quickly rolling out similar alternatives that can be bundled with TV and phone packages. This is a worthy threat to ADT’s business.

All in all, ADT Corp (NYSE:ADT) is likely to be on the cheaper end of stocks, with similar growth prospects and free cash flow growth, yet its moat is not strong enough to keep it insulated from outside forces. Management guided sequential quarterly revenue growth to be down, which could present a buying opportunity if the market sells off. This is a strong company with great prospects — just wait for the right price to come along.

The article Can ADT Secure a Win for Your Portfolio? originally appeared on Fool.com.

Fool contributor Michael B. Lewis and The Motley Fool have no position in any of the stocks mentioned.

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