A Board Member Likes the ADT Spinout

Page 1 of 2

ADT Corp (NYSE:ADT) was spun out from Tyco International Ltd. (NYSE:TYC) in September 2012 as a pure-play home and business security business. As a spinout, this event received significant attention from many investors; these companies often make good investments because management of the new company can better focus on operations without having to satisfy the needs of the larger business (read more about spinouts).

ADT Corp (NYSE:ADT)

Now a member of ADT’s Board of Directors, Thomas Colligan, has purchased 2,000 shares of the stock at an average price of about $47.35 according to a recent filing with the SEC. This gives Colligan almost 4,000 shares of ADT Corp, so this transaction has more than doubled his direct holdings. In addition to the positive nature of a spinout, we also like to see insiders buying a stock as it signals enough confidence in the company to ignore the benefits of diversification. We think that this is why insider purchases tend to be bullish signals on average (read more about studies on insider trading).

ADT Corp recently filed its quarterly report for the quarter ending December 2012, the first of its current fiscal year. Clearly comparisons to a year ago should be taken with a grain of salt due to ADT’s presence within Tyco at that time, but it’s necessary to get at least some information about how the business is performing. The report showed a small amount of revenue growth versus a year earlier, but a 13% increase in earnings due to higher margins (even accounting for some separation costs and an increase in SGA expenses). The 44 cents per share that ADT produced in the quarter annualizes to $1.76, or a price-to-earnings multiple of 27. This straight annualization assumes little seasonality, but also does not give ADT any credit for eliminating its separation costs or improving core operations as an independent business.

Wall Street analyst estimates for the forward fiscal year, ending in September 2014, imply a forward P/E of 24. That is a fairly high multiple, and so it appears that the market is being more optimistic about ADT’s prospects than the sell-side. In order to prove fairly valued at the current price- let alone undervalued enough to buy- either analyst consensus is dramatically underestimating the improvements that will be made at the company, or ADT will be able to generate higher earnings growth a couple years from now than it has been reporting. We’d be wary about depending on either factor. Read another analysis of ADT.

Let’s look at how ADT compares to other security related companies:

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

The 10 Biggest Tax Havens in the World to Stash Your Money

The 15 Most Murderous Countries in the World

10 Largest Colleges in the World: Bigger Isn’t Always Better

Comedians in Cars Getting Coffee: The 6 Comedians Seinfeld Needs to Interview

Easy Money: The 10 Most Successful Investors in the World Today

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!