You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Frontdoor's Stock Rises 36% in Three Months: Good Time to Buy FTDR?
Read MoreHide Full Article
Shares of Frontdoor, Inc. (FTDR - Free Report) , the leading provider of home warranties in the United States, have rallied 36.1% in the past three months. The stock has significantly outperformed the 2% rise registered by the Zacks Building Products - Miscellaneous industry.
FTDR also outpaced the Zacks Construction sector's 5.1% growth and the S&P 500 index's 0.8% increase during the same period. The company is benefiting from improved contract claims costs and customer retention. Also, the emphasis on home warranties and on-demand home services bodes well.
The recent strong performance of Frontdoor puts it ahead of peers like Armstrong World Industries, Inc. (AWI - Free Report) and Construction Partners, Inc. (ROAD - Free Report) , which moved up 6% and 6.6%, respectively, in the past three months. It also outpaced Advanced Drainage Systems, Inc. (WMS - Free Report) , which saw a 17.8% decline during the same period.
Image Source: Zacks Investment Research
FTDR Trading Above 50 & 200-Day Moving Averages
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for Frontdoor. FTDR is currently trading above its 50-day SMA. In fact, the 50-day SMA continues to read higher than the 200-day SMA, signaling a bullish trend. This technical strength highlights positive market sentiment and confidence in FTDR's financial stability and prospects.
Factors Driving FTDR’s Stock Surge
Boosting Home Warranty Sales: Although macroeconomic headwinds are impacting home warranty sales, Frontdoor continues to focus on the long-term growth potential of the market. The company has modestly revised its outlook for member count.
The company's American Home Shield (AHS) brand continues to focus on selling home warranties. Frontdoor has implemented several measures to boost home warranty sales. In April, the company launched a new marketing campaign for AHS that generated strong results. FTDR also deployed short-term strategies like a 50% discount promotion in July 2024, which showed positive renewal rates.
The company is advancing to the next phase of the AHS brand relaunch. These initiatives demonstrate FTDR’s commitment to using targeted discounts to attract and retain members.
Expanding On-Demand Business: FTDR is making notable strides in its on-demand business, showing significant growth and enhanced capabilities. It is successfully expanding its ecosystem to cover a wide range of home services, reaching more homeowners and leveraging a network of independent contractors. This approach is increasing the company's share of wallets and effectively addressing repair, replacement and maintenance needs.
The company's HVAC on-demand business is performing exceptionally well. During the second quarter, FTDR's other revenues increased 46% year over year, driven by higher on-demand home services, primarily new HVAC sales. The company is advancing its technology capabilities and developing new revenue streams, as highlighted by its recent partnership with Moen.
2-10 Acquisition Fuels FTDR’s Expansion: In June, FTDR entered into an agreement to acquire 2-10 Home Buyers Warranty, a leading provider of new home structural warranties. The acquisition is expected to deliver near-term benefits, including an expanded customer base, product diversification and significant synergies. Over the long term, it is anticipated to enhance growth in the customer base, revenues and earnings.
Strong Liquidity Profile: Frontdoor continues to ensure financial flexibility, supporting future investments and driving long-term growth. Net cash provided by operations was $187 million in the six months ended June 30, 2024, up from $112 million a year ago. Its net debt to adjusted EBITDA ratio improved to 0.85x in the second quarter of 2024, compared to 1.5x in the year-ago quarter, highlighting a stronger financial position.
Frontdoor remains committed to enhancing shareholder value through strategic initiatives aimed at boosting returns. On July 26, Frontdoor's Board approved a new 3-year share repurchase plan worth $650 million, marking a 63% increase from the previous authorization.
Potential Risks to FTDR’s Stock Growth
The current environment presents significant cyclical issues, particularly due to consumer stress and reduced spending, which are impacting the home warranty sector and other areas of the economy.
During the second quarter, real estate and direct-to-consumer (DTC) revenues fell 14% year over year each. The downtick was mainly due to lower home warranty sales, which were impacted by a challenging real estate market and inflation affecting consumer sentiment. Elevated home prices, high mortgage rates and low inventory are significant challenges for the company.
FTDR's Estimate Movement & Valuation
Analysts are showing confidence in the stock, as indicated by recent upward revisions in earnings estimates. This depicts that there is solid upside potential for the stock. The estimated figure indicates 21.3% year-over-year growth for 2024. FTDR’s growth prospect is further solidified with a VGM Score of A, backed by a Growth Score of A.
Image Source: Zacks Investment Research
Frontdoor is currently trading at a discount compared to its industry peers, as shown below. Despite FTDR's strong stock performance relative to its industry, its current valuation suggests that the market might not have fully acknowledged or priced in the company's growth potential and earnings prospects.
Image Source: Zacks Investment Research
Is it the Right Time to Buy FTDR Stock Now?
Despite facing significant cyclical challenges, such as consumer stress, reduced spending, and a tough real estate market, Frontdoor is demonstrating resilience.
The company’s raised outlook for 2024 is also reflective of the fact. Revenue is now expected to grow 2-3% to a range of $1.81-$1.84 billion. The gross margin outlook was increased to slightly above 51%, compared with the prior projection of 50%. Adjusted EBITDA is now projected to be within $385-$395 million versus an earlier range of $360-$370 million.
Although the company observed soft demand in DTC and real estate channels during second-quarter 2024, it witnessed a positive trend in the renewal channel. The overall retention rate increased by 30 bps to 76.6%. A decline of $17 million in contract claims cost reflects successful cost management and process improvements. These robust fundamentals and strong financial outlook make this Zacks Rank #1 (Strong Buy) company an attractive addition to investors' portfolios at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
In-Depth Zacks Research for the Tickers Above
Normally $25 each - click below to receive one report FREE:
Shares of Frontdoor, Inc. (FTDR - Free Report) , the leading provider of home warranties in the United States, have rallied 36.1% in the past three months. The stock has significantly outperformed the 2% rise registered by the Zacks Building Products - Miscellaneous industry.
FTDR also outpaced the Zacks Construction sector's 5.1% growth and the S&P 500 index's 0.8% increase during the same period. The company is benefiting from improved contract claims costs and customer retention. Also, the emphasis on home warranties and on-demand home services bodes well.
The recent strong performance of Frontdoor puts it ahead of peers like Armstrong World Industries, Inc. (AWI - Free Report) and Construction Partners, Inc. (ROAD - Free Report) , which moved up 6% and 6.6%, respectively, in the past three months. It also outpaced Advanced Drainage Systems, Inc. (WMS - Free Report) , which saw a 17.8% decline during the same period.
Image Source: Zacks Investment Research
FTDR Trading Above 50 & 200-Day Moving Averages
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for Frontdoor. FTDR is currently trading above its 50-day SMA. In fact, the 50-day SMA continues to read higher than the 200-day SMA, signaling a bullish trend. This technical strength highlights positive market sentiment and confidence in FTDR's financial stability and prospects.
Factors Driving FTDR’s Stock Surge
Boosting Home Warranty Sales: Although macroeconomic headwinds are impacting home warranty sales, Frontdoor continues to focus on the long-term growth potential of the market. The company has modestly revised its outlook for member count.
The company's American Home Shield (AHS) brand continues to focus on selling home warranties. Frontdoor has implemented several measures to boost home warranty sales. In April, the company launched a new marketing campaign for AHS that generated strong results. FTDR also deployed short-term strategies like a 50% discount promotion in July 2024, which showed positive renewal rates.
The company is advancing to the next phase of the AHS brand relaunch. These initiatives demonstrate FTDR’s commitment to using targeted discounts to attract and retain members.
Expanding On-Demand Business: FTDR is making notable strides in its on-demand business, showing significant growth and enhanced capabilities. It is successfully expanding its ecosystem to cover a wide range of home services, reaching more homeowners and leveraging a network of independent contractors. This approach is increasing the company's share of wallets and effectively addressing repair, replacement and maintenance needs.
The company's HVAC on-demand business is performing exceptionally well. During the second quarter, FTDR's other revenues increased 46% year over year, driven by higher on-demand home services, primarily new HVAC sales. The company is advancing its technology capabilities and developing new revenue streams, as highlighted by its recent partnership with Moen.
2-10 Acquisition Fuels FTDR’s Expansion: In June, FTDR entered into an agreement to acquire 2-10 Home Buyers Warranty, a leading provider of new home structural warranties. The acquisition is expected to deliver near-term benefits, including an expanded customer base, product diversification and significant synergies. Over the long term, it is anticipated to enhance growth in the customer base, revenues and earnings.
Strong Liquidity Profile: Frontdoor continues to ensure financial flexibility, supporting future investments and driving long-term growth. Net cash provided by operations was $187 million in the six months ended June 30, 2024, up from $112 million a year ago. Its net debt to adjusted EBITDA ratio improved to 0.85x in the second quarter of 2024, compared to 1.5x in the year-ago quarter, highlighting a stronger financial position.
Frontdoor remains committed to enhancing shareholder value through strategic initiatives aimed at boosting returns. On July 26, Frontdoor's Board approved a new 3-year share repurchase plan worth $650 million, marking a 63% increase from the previous authorization.
Potential Risks to FTDR’s Stock Growth
The current environment presents significant cyclical issues, particularly due to consumer stress and reduced spending, which are impacting the home warranty sector and other areas of the economy.
During the second quarter, real estate and direct-to-consumer (DTC) revenues fell 14% year over year each. The downtick was mainly due to lower home warranty sales, which were impacted by a challenging real estate market and inflation affecting consumer sentiment. Elevated home prices, high mortgage rates and low inventory are significant challenges for the company.
FTDR's Estimate Movement & Valuation
Analysts are showing confidence in the stock, as indicated by recent upward revisions in earnings estimates. This depicts that there is solid upside potential for the stock. The estimated figure indicates 21.3% year-over-year growth for 2024. FTDR’s growth prospect is further solidified with a VGM Score of A, backed by a Growth Score of A.
Image Source: Zacks Investment Research
Frontdoor is currently trading at a discount compared to its industry peers, as shown below. Despite FTDR's strong stock performance relative to its industry, its current valuation suggests that the market might not have fully acknowledged or priced in the company's growth potential and earnings prospects.
Image Source: Zacks Investment Research
Is it the Right Time to Buy FTDR Stock Now?
Despite facing significant cyclical challenges, such as consumer stress, reduced spending, and a tough real estate market, Frontdoor is demonstrating resilience.
The company’s raised outlook for 2024 is also reflective of the fact. Revenue is now expected to grow 2-3% to a range of $1.81-$1.84 billion. The gross margin outlook was increased to slightly above 51%, compared with the prior projection of 50%. Adjusted EBITDA is now projected to be within $385-$395 million versus an earlier range of $360-$370 million.
Although the company observed soft demand in DTC and real estate channels during second-quarter 2024, it witnessed a positive trend in the renewal channel. The overall retention rate increased by 30 bps to 76.6%. A decline of $17 million in contract claims cost reflects successful cost management and process improvements. These robust fundamentals and strong financial outlook make this Zacks Rank #1 (Strong Buy) company an attractive addition to investors' portfolios at present. You can see the complete list of today’s Zacks #1 Rank stocks here.