NEW BULLISH Plays
The ADT Corp. - ADT - close: 39.84 change: +0.46
Stop Loss: 37.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 23, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: Yes, see below
Why We Like It:
ADT is in the alarm and home monitoring business. It has been a very bumpy ride for investors since the company was spun off from Tyco International back in 2012. Shares of ADT plunged from $50 a share in early 2013 down toward $28 by early 2014. The company has been working on a turnaround and the worst seems to be behind it.
The company describes itself as "The ADT Corporation (ADT) is a leading provider of security and automation solutions for homes and businesses in the United States and Canada. ADT's broad and pioneering set of products and services, including ADT PulseÂ® interactive home and business solutions, and health services, meet a range of customer needs for todayâ€™s active and increasingly mobile lifestyles. Headquartered in Boca Raton, Florida, ADT helps provide peace of mind to nearly seven million customers, and it employs approximately 17,500 people at 200 locations."
ADT has been consistently beating Wall Street's earnings expectations the last few quarters. Their most recent earnings report was ADT's 2015 Q1, which was announced on January 28th. Results were 51 cents a share. That's a +18.6% increase from a year ago. Revenues were up +5.7% to $887 million, above estimates.
Management said their recurring subscription revenues, about 93% of total revenues, were up +6.5% from a year ago. The number of client accounts had risen from 6.4 million to 6.7 million in the last two quarters. ADT reported higher average revenue per customer with an increase of +5.3%. That's likely due to their growth in Pulse subscribers. Pulse is a higher-end subscription for ADT, which now accounts for 19% of its subscription base. Pulse customers have a lower drop out rate and higher margins.
Previously Wall Street was worried that cable giants like Comcast, when they jumped into the home alarm monitoring business, would steal customers and hurt ADT's business Thus far that has not been the case. Now the race is on to see who can cash in on the "connected home" industry, which will be a big part of the Internet of Things.
Technically shares of ADT have been showing relative strength. They recently broke through resistance near $37.00-38.00 and formed an inverse head-and-shoulders pattern (which is bullish). The point & figure chart is also very bullish with a breakout and a $52.00 target (see below). The most recent data listed short interest at 27% of the 170 million share float. That's plenty of fuel for a short squeeze.
Tonight we are suggesting a trigger to open bullish positions at $40.10.
Trigger @ $40.10
- Suggested Positions -
Buy ADT stock @ (trigger)
- (or for more adventurous traders, try this option) -
Buy the APR $40 CALL (ADT150417C40) current ask $1.65
Option Format: symbol-year-month-day-call-strike
Point & Figure chart: