Investment Thesis
ADT demonstrates solid operational metrics with 25.5% operating margin and strong free cash flow of $589.2M, but faces critical financial distress signals: interest coverage of 0.7x means operating income cannot service debt obligations, paired with 2.05x Debt/Equity leverage and liquidity concerns (0.84x current ratio). Equity holders are subordinated to substantial debt service needs despite operational stability.
Strengths
- Exceptional free cash flow generation at 46.1% FCF margin ($589.2M annually)
- Stable security services business with 4.7% revenue growth
- Strong operating margin of 25.5% demonstrates operational efficiency
Risks
- Critical interest coverage ratio of 0.7x: operating income insufficient to cover debt service obligations
- Severe leverage with $7.8B long-term debt and 2.05x Debt/Equity ratio
- Liquidity stress with current ratio of 0.84x and negative diluted EPS (-0.57) despite positive net income
- Minimal equity returns: ROE of 4.4% and ROA of 1.1% indicate poor capital efficiency for shareholders
Key Metrics to Watch
- Interest coverage ratio (critical - must exceed 1.2x for financial health)
- Debt reduction progress and net leverage trajectory
- Current ratio and working capital management
- Free cash flow allocation toward debt reduction vs. shareholder returns
Financial Metrics
Revenue
1.3B
Net Income
168.4M
EPS (Diluted)
$-0.57
Free Cash Flow
589.2M
Total Assets
15.9B
Cash
119.3M
Profitability Ratios
Gross Margin
N/A
Operating Margin
25.5%
Net Margin
13.2%
ROE
4.4%
ROA
1.1%
FCF Margin
46.1%
Balance Sheet & Liquidity
Current Ratio
0.84x
Quick Ratio
0.84x
Debt/Equity
2.05x
Debt/Assets
76.1%
Interest Coverage
0.69x
Long-term Debt
7.8B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T11:33:41.683102 |
Data as of: 2026-03-31 |
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