FTDR - Embedded Expectations Analysis - 2020 12 24
frontdoor, inc. (FTDR:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 26.2x Uniform P/E. Even at these levels, the market has bearish expectations for the firm. Although management's concerns about their pricing, revenue, and liquidity position suggest the potential for near-term headwinds, market expectations are too bearish, and longer-term equity outperformance is likely warrantedSpecifically, management may lack confidence in their ability to retain customers, accelerate expected revenue through investments, and sustain gross profit. In addition, they may have concerns about being a stand-alone public company, the efficiency of their dynamic pricing, and the continued decline in first-year real estate home service plan. Furthermore, they may lack confidence in their ability to maintain their liquidity position, meet their estimated gross margins of 48%-50% next year, and invest in organic growth
Although management's concerns about their pricing, revenue, and liquidity position suggest the potential for near-term headwinds, market expectations are too bearish given the firm's robust profitability and booming macro tailwinds for the business. As such, longer-term equity outperformance is likely warranted
Frontdoor is a provider of home service plans in the U.S., and operates under the American Home Shield, HSA, OneGuard and Landmark brands. The company's home service plans help customers protect and maintain their homes, typically their asset, from costly and unplanned breakdowns of essential home systems and appliances. The company's home service plans cover the repair or replacement of main components of household systems and appliances, including electrical, plumbing, central heating, ventilation and air conditioning systems, water heaters, refrigerators, dishwashers and ranges/ovens/cooktops. The company serves customers across various states and the District of Columbia.
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