Is Your Portfolio Secure With This Security Stock? – ADT Corp (ADT): Ascent Capital Group Inc (ASCMA), Brink’S Co (BCO)

Business risks

Product bundling is an old trick that still works well. Companies in the telecommunications industry pose the greatest threat to ADT’s business by cross-selling security services to their existing customers. Investors will have to monitor ADT’s customer attrition rates, which were at 13.8% and 13.0% for fiscal years 2012 and 2011, respectively.

The housing market is a double-edged sword for ADT. If the housing market remains subdued, ADT’s sales of new security and home automation system and services will likely decrease with less new homes. On the other hand, if the housing market recovers, more people may move and possibly switch to new home security solutions
providers.

Conclusion

ADT’s current share price is close to its 52-week high of $49.66 and more than 30% higher than share price levels as at Sept. 2012. While I like ADT’s capital allocation policy and strong recurring cash flows, current valuations do not offer a sufficient margin of safety. Also, the impact of product bundling strategies by telecommunication companies on ADT’s churn rate is uncertain at this point in time.

The article Is Your Portfolio Secure With This Security Stock? originally appeared on Fool.com and is written by Mark Lin.

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