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Why Shares in Resideo Technologies Surged by 83.4% in November

By Lee Samaha - Dec 4, 2020 at 9:59AM

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The home products company is benefiting from stay-at-home measures.

What happened

Shares in home comfort and security products company Resideo Technologies ( REZI -4.26% ) surged 83.4% in November according to data provided by S&P Global Market Intelligence. The move comes as a consequence of a super set of third-quarter results that easily beat analyst estimates. 

In a nutshell, analysts underestimated the strength of the company's demand in light of stay-at-home measures. There's been a slew of consumer discretionary companies reporting strong earnings reports as a consequence of consumers' willingness to spend on home improvement during the pandemic, and Resideo is one of them.

A woman adjusting a thermostat.

Image source: Getty Images.

Revenue of $1.4 billion in the quarter represented an 11% increase on the same period last year with its ADI Global Distribution business reporting an 11% increase to $790 million while its own products and solutions grew revenue by 12% to $512 million.

In addition, on the earnings release CEO Jay Geldmacher said that "Demand strengthened as the quarter progressed at ADI and across our Products & Solutions offerings" implying that demand is strengthened going into the fourth quarter.

So what

Guidance for the fourth quarter of only $1.36 billion to $1.41 billion implies just a 1.7% increase over the third quarter of 2020 at the midpoint. Frankly, this looks conservative given that the increase from the third to the fourth quarter of last year was 6.4%.

Another point to note is that the company took advantage of the increase in share price to make a public offering of 17 million shares at a price of $15 a share. The proceeds are intended to pay down debt and invest for growth.

Now what

Management's guidance looks conservative, so don't be surprised if Resideo beats estimates in the fourth quarter, but thinking longer-term, the company needs to demonstrate it can keep up its growth trajectory through 2021.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning 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 richer.

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Stocks Mentioned

Resideo Technologies, Inc. Stock Quote
Resideo Technologies, Inc.
$26.09 (-4.26%) $-1.16

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