ADT (ADT 1.10%) is known for providing security, but the shareholders haven't felt particularly secure lately. The stock has gone nowhere over the past four years, and even tread water in 2021 while the S&P 500 gained 27%. Amid this bearish backdrop, ADT's annual 1.81% dividend yield offers little in the way of consolation.
Clearly, ADT is in dire need of a catalyst to get investors enthused about this century-old company. Fortunately, an equally old automaker (albeit one that's proved its ability to adapt and modernize) could help ADT finally get out of its rut.
Image source: Getty Images.
Monitoring the bottom line
In some respects, ADT's financials, much like the stock itself, haven't made much progress, if any. Some investors might find it bothersome, for example, that the company's cash and cash equivalents have dwindled from $205 million at the end of 2020, to just $61.2 million as of Sept. 30, 2021. Meanwhile, ADT's total liabilities remained unchanged during that time frame, at roughly $13 billion.
Moreover, ADT showed little to no revenue growth between the third quarter of 2020 and the same period in 2021 (around $1.3 billion generated during both quarters), or between the nine months ended Sept. 30, 2021, and the equivalent year-earlier period (roughly $4 billion in revenue generated both times).
In ADT's favor, however, is the company's improving bottom line. Primarily by losing less money on debt and interest expenditures, the company managed to reduce its net loss from $520 million in the nine months ended Sept. 30, 2020, to $283 million in the equivalent period of 2021.
A pricey gamble on solar
Even with that bottom-line improvement, it's still worrisome that ADT continues to operate at a loss. Perhaps a new direction -- and a bit of modernization -- could accelerate the company's path to profitability and woo reluctant investors.
One apparent attempt to evolve is ADT's acquisition of Sunpro Solar, which supposedly represents the company's "entrance into the high-growth residential solar market." In defense of this acquisition, CEO Jim DeVries said, "more than a quarter of ADT customers surveyed expressed interest in purchasing rooftop solar panels for their homes."
Fair enough, but should a company that's been posting nine-figure net losses be engaging in acquisitions? Sunpro's price tag of $160 million plus approximately 77.8 million ADT common-stock shares implies a total enterprise value of roughly $825 million. In other words, a whole lot of solar-panel sign-ups will be needed to put this costly investment in the black.
Taking security on the road
In contrast to the Sunpro purchase, there's little doubt that ADT's joint venture with Ford (F -1.65%) will enhance the former company's shareholder value. Together, Ford and ADT will invest in a new joint venture called Canopy, wherein ADT will provide the security monitoring and Ford will deploy its artificial-intelligence (AI) driven video camera technology "to help customers strengthen security of new and existing vehicles across automotive brands," according to the announcement of the deal.
Drivers and investors can look forward to an initial rollout in the U.S. and the U.K., with AI-enhanced security products available in Ford's F-150, F-150 Lightning, Transit van, and E-Transit models, among others. However, they'll need to be patient as Canopy's security systems won't be available until early next year.
As an anti-theft measure, putting ADT's security solutions in Ford's vehicles seems like a no-brainer; it's actually surprising that something like this didn't happen years ago. It will be exciting to witness the Canopy rollout and to see how it affects ADT's top and bottom lines.
Threat detection
ADT's hefty cost to acquire Sunpro Solar is a major concern. Besides, it's entirely possible that the company's customers who said that they want rooftop solar panels might not actually buy them from ADT, or at all.
Much more reassuring is the business venture with Ford, which has successfully navigated its own evolution into clean-energy vehicles. Perhaps Ford can help ADT expand its horizons, as well.
So, whether ADT stock is right for you depends on your risk tolerance and your willingness to wait. Consider a speculative long position if you're so inclined, but don't expect immediate results as the ADT-Ford collab will take a while to implement.
