The ADT Corporation
) is scheduled to report third-quarter 2014 results before the
opening bell on Jul 30. In the last reported quarter, ADT's
earnings comfortably beat the Zacks Consensus Estimate by 5 cents.
Let's see how things are shaping up for this announcement.
Factors to Consider
ADT has a strong footprint in the large and growing residential
and small business security market. It recently sealed the
acquisition of Reliance Protectron, Inc. - one of the largest
security monitoring and installation companies in Canada. With this
deal, ADT has strengthened its Canadian presence to better serve
over 800,000 local customers with the best of products and
solutions along with superior customer service in the security
industry. In addition, the strategic buy will offer a steady
revenue stream to ADT in the imminent future.
However, ADT incurs significant upfront investments for expanding
its customer base, including direct material and labour costs to
install security and home/business automation systems; indirect
sales costs, marketing costs and administrative costs related to
installation activities. The economics of the installation business
also varies depending on the customer acquisition channel.
Consequently, ADT's long-term profitability is dependent on
customer tenure and minimal customer attrition. However, continued
customer attrition rate in the recent quarters despite some solid
customer retention activities, remains a concern for the company.
Also, ADT has to continually invest in R&D and similar other
value drivers that hedge against tough competition. This increases
its operating costs and reduces its profitability to some
Our proven model does not conclusively show that ADT will beat
the Zacks Consensus Estimate this quarter. This is because a stock
needs to have both a positive Earnings ESP and a Zacks Rank #1, #2
or #3 for this to happen. This is not the case here as you will see
, which represents the difference between the Most Accurate
estimate and the Zacks Consensus Estimate, is pegged at 0.00%. This
is because both the Most Accurate estimate and Zacks Consensus
Estimate currently stand at 46 cents.
Zacks Rank #3 (Hold): ADT's Zacks Rank #3 when combined with
0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated
stocks) going into the earnings announcement, especially when the
company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some companies you may want to consider as our model
shows that they have the right combination of elements to post an
earnings beat in the future.
Arch Capital Group Ltd. (
) earnings ESP of +5.10% and Zacks Rank #2 (Buy).
) earnings ESP of +1.90% and Zacks Rank #2 .
Clayton Williams Energy, Inc. (
), earnings ESP of +4.46% and a Zacks Rank #1. (Strong Buy).
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