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 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

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!