Friday - Frontdoor Inc. (NASDAQ:FTDR) received an upgrade from William Blair, moving from Market Perform to Outperform. The firm cites an improving growth outlook as the primary reason for the change in rating.
The optimism is rooted in the expectation of better housing conditions driven by various factors, including Federal Reserve easing, lower inflation, and the expansion of discount and affinity programs, which are anticipated to bolster organic growth in 2025.
The analyst from William Blair highlighted that although the core channels for Frontdoor continue to face pressure, there appears to be a turning point on the horizon. The analyst anticipates that the 2-10 Home Buyers Warranty (2-10 HBW) deal will contribute to a revenue increase of over 15% in the next year, acting as a bridge to 2026 when housing conditions are likely to improve further, allowing for expansion of core channels.
In addition to the revenue growth, the analyst expects that Frontdoor will maintain high margins. This prediction is based on the assumption that inflation will decelerate and the company will benefit from process improvements already in place. These factors are projected to lead to earnings per share (EPS) of $2.90 in 2025, or $3.10 when factoring in the 2-10 HBW deal.
The report concludes with a financial outlook, noting that the current stock price does not fully reflect the anticipated positive changes. Frontdoor's stock is trading at approximately 14 times the firm's 2025 pro forma EPS estimate, which is considered low compared to historical valuations in the high teens. This suggests that the market may not have fully accounted for the company's growth prospects.
In other recent news, Frontdoor Inc. has been the subject of multiple analyst upgrades and strategic developments. William Blair upgraded Frontdoor's rating from Market Perform to Outperform, citing an improving growth outlook driven by better housing conditions, lower inflation, and the expansion of discount and affinity programs. The firm's optimism also stems from Frontdoor's acquisition of 2-10 Home Buyers Warranty, which is expected to contribute to a revenue increase of over 15% in the next year and an earnings per share of $3.10.
On the financial front, Frontdoor outperformed analyst expectations in its second quarter, reporting an EBITDA of $158 million and revenues of $542 million. This strong performance led Oppenheimer to raise its price target for Frontdoor from $44 to $50 while maintaining an Outperform rating. The company's management also upgraded its full-year 2024 guidance, with the adjusted EBITDA forecast now standing at $385 million to $395 million.
KeyBanc maintained its Sector Weight rating on Frontdoor following the acquisition of 2-10 Home Buyers Warranty. This strategic acquisition is expected to diversify Frontdoor's customer base and offer new market exposure, particularly in new home sales. The acquisition, set to close in the fourth quarter of 2024, is anticipated to contribute positively to Frontdoor's adjusted EBITDA and free cash flow starting in 2025.
Lastly, despite facing challenges in the home warranty market, Frontdoor reported a robust first quarter for 2024 with a 3% increase in revenue to $378 million and a 33% rise in adjusted EBITDA to $71 million.
The company has raised its full-year outlook for 2024, forecasting revenue between $1.81 billion and $1.84 billion, and adjusted EBITDA between $360 million and $370 million. These recent developments demonstrate Frontdoor's resilience and adaptability amidst industry challenges.
InvestingPro Insights
Recent analysis from InvestingPro provides a deeper look into Frontdoor Inc.'s (NASDAQ:FTDR) financial health and market performance. A perfect Piotroski Score of 9 indicates strong financials, while a low P/E ratio relative to near-term earnings growth, currently at 15.22, suggests that the stock may be undervalued in light of its earnings potential. The company's significant return over the last week, with a 16.58% price total return, reflects a positive market sentiment that aligns with the upgrade from William Blair.
InvestingPro also notes that Frontdoor has been trading at a high Price/Book multiple of 21.16, which can be a sign of the market's high expectations for the company's future performance. Additionally, the company's strong return over the last month and three months, at 30.42% and 30.81% respectively, further underscores the bullish trend identified by analysts. It's worth mentioning that Frontdoor does not pay a dividend, which could be a consideration for income-focused investors. For those looking for more in-depth analysis, there are additional InvestingPro Tips available on their platform.
These insights, particularly the Piotroski Score and the P/E ratio, complement the William Blair analyst's optimistic outlook for Frontdoor, suggesting that the company is not only poised for growth but also financially robust. As investors consider the potential for improved housing conditions and Frontdoor's strategic moves, these InvestingPro metrics offer valuable context for the company's valuation and market performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.