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Why ADT Stock Gained 23.6% Last Month

By Keith Noonan – Updated Jun 7, 2020 at 10:43AM

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The security company's first quarter results came in much different than the market expected, but the performance wasn't the driving factor in the stock's gains.

What happened

Shares of ADT (ADT 2.57%) gained 23.6% in May, according to data from S&P Global Market Intelligence. The stock climbed following the company's first quarter earnings release early in the month, but it appears that momentum for the broader market was the primary catalyst for last month's gains.

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ADT released first quarter results on May 7, posting revenue that topped the market's expectations and earnings that came in significantly lower than anticipated. The company reported a non-GAAP (adjusted) loss per share of $0.09 on sales of $1.37 billion, while the average analyst target had called for adjusted earnings of $0.17 per share on revenue of $1.23 billion. 

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So what

ADT's first quarter revenue climbed 10% year over year, but its net loss for the period expanded to $300 million -- up from a loss of $66 million in the prior-year period.

The company posted significant sales growth in the quarter despite having sold off its Canadian business unit in November. ADT completed its acquisition of the Defenders security retail business in January, and the integration of the new unit was a key factor in both the sales growth and widening net loss in the first quarter. 

The release of the company's first quarter results corresponded with a small bump for the stock, but the recovery taking place across the broader market seems to have been the main factor in May's performance. ADT's big gains last month followed a 32.6% increase for the company's share price in April. 

Now what

ADT stock has continued to rally in June's trading, with shares up roughly 18.2% in the month so far. 

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ADT's first quarter report arrived with updated guidance for the full-year period. The company now expects free cash flow (before adjustments for special items) between $600 million and $700 million, widening from its previous target range for cash flow between $630 million and $670 million. ADT now anticipates adjusted EBITDA between $2.075 billion and $2.175 billion, down from its previous target for adjusted EBITDA between $2.175 billion and $2.25 billion. The company maintained its target for sales between $5 billion and $5.3 billion for the year.

ADT stock is valued at roughly eight times the average analyst target for this year's earnings, 1.25 times expected sales, and has a dividend yield of roughly 1.7%.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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ADT Inc.
$8.38 (2.57%) $0.21

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