ADT (ADT -3.35% ) is known for its security, but shareholders haven’t felt particularly safe lately. The stock hasn’t gone anywhere in the past four years, and even stalled in 2021 as the S&P500 gained 27%. In this bearish environment, ADT’s 1.81% annual dividend yield offers little consolation.
Clearly, ADT desperately needs a catalyst to get investors excited about this century-old company. Fortunately, an equally old automaker (although it has a proven ability to adapt and modernize) could finally help ADT out of its rut.
Net income follow-up
In some ways, ADT’s finances, like the stock itself, haven’t made much, if any, progress. Some investors might find it troublesome, for example, that the company’s cash and cash equivalents have fallen from $205 million at the end of 2020 to just $61.2 million as of September 30, 2021. Meanwhile, the ADT’s total liabilities remained unchanged during this period. framework, at about $13 billion.
Additionally, ADT posted little to no revenue growth between the third quarter of 2020 and the same period in 2021 (approximately $1.3 billion generated in both quarters), or between the nine months ended September 30. 2021 and the equivalent period of the previous year. (about $4 billion in revenue generated both times).
In favor of ADT, however, the improvement in the company’s bottom line. Primarily by losing less money on debt and interest expense, the company managed to reduce its net loss from $520 million in the nine months ended September 30, 2020 to $283 million during the equivalent period of 2021.
An expensive bet on solar
Even with this improvement in results, it is still concerning that ADT continues to operate at a loss. Perhaps new management — and a bit of modernization — could hasten the company’s path to profitability and woo reluctant investors.
An apparent attempt at evolution is ADT’s acquisition of Sunpro Solar, which supposedly represents “the company’s entry into the high-growth residential solar market.” Defending the acquisition, CEO Jim DeVries said “more than a quarter of ADT customers surveyed expressed interest in purchasing rooftop solar panels.”
Fair enough, but should a company that posted nine-figure net losses engage in acquisitions? Sunpro’s price of $160 million plus approximately 77.8 million shares of ADT common stock implies a total enterprise value of approximately $825 million. In other words, a large number of solar panel listings will be required to put this expensive investment in the black.
Take safety on the road
Unlike the purchase of Sunpro, there is no doubt that ADT’s joint venture with Ford ( F 3.54% ) will increase the shareholder value of the old company. Together, Ford and ADT will invest in a new joint venture called Canopy, in which ADT will provide safety oversight and Ford will deploy its artificial intelligence (AI)-driven video camera technology “to help customers enhance vehicle safety. new and existing automotive brands,” according to the agreement announcement.
Drivers and investors can expect an initial rollout in the US and UK, with AI-enhanced safety products available in Ford F-150, F-150 Lightning, Transit van and E-Transit, among others. However, they’ll have to be patient as Canopy’s security systems won’t be available until early next year.
As an anti-theft measure, installing ADT’s security solutions in Ford vehicles seems like a no-brainer; it’s actually surprising that something like this didn’t happen years ago. It will be exciting to watch Canopy roll out and see how it affects ADT’s bottom line.
ADT’s high cost to acquire Sunpro Solar is a major concern. Also, it’s entirely possible that the company’s customers who have said they want rooftop solar panels may not buy them from ADT, if at all.
Much more reassuring is the business venture with Ford, which has managed its own evolution towards clean-energy vehicles. Maybe Ford can help ADT expand its horizons as well.
So whether ADT stocks are right for you depends on your risk tolerance and willingness to wait. Consider a speculative long position if you’re so inclined, but don’t expect immediate results as the ADT-Ford collaboration will take some time to implement.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.