A Board Member Likes the ADT Spinout

Peers for ADT include Brink’s Co (NYSE:BCO), Ascent Capital Group Inc (NASDAQ:ASCMA), and Checkpoint Systems, Inc. (NYSE:CKP). Checkpoint and Ascent Capital are expected to be unprofitable for 2012, and Ascent is expected to report negative earnings this year as well. With that company experiencing only moderate growth we would avoid it. Checkpoint is expected to recover, with analyst consensus for 2013 implying a current-year P/E of 16, but its most recent quarterly report showed a decline in sales and while net losses were only narrowly negative they did miss expectations substantially. Brink’s bottom line performance has been strong though revenue growth has been much more limited and so we doubt that earnings growth can be sustained. However, it has at least some value prospects at a trailing P/E of 15 and might be the best deal in the industry.

We like spinouts, particularly ones where an insider has been showing confidence in the new company by buying the stock. However, in the case of ADT the pricing appears high and we might conclude that the market has already spotted the opportunity- the ADT spinout has been high profile- and reacted accordingly. The earnings multiples, even those based on what are normally sunny analyst expectations, are too high for us to recommend buying at this point.

Disclosure: I own no shares of any stocks mentioned in this article.