Frontdoor Inc (FTDR, Financial) recently experienced a daily gain of 4.44%, though it has witnessed a 3-month loss of -5.08%. With an Earnings Per Share (EPS) of 1.56, the question arises: is the stock modestly undervalued? This article aims to answer this question by providing a thorough valuation analysis of Frontdoor (FTDR). Read on to discover whether this stock could be a profitable addition to your portfolio.
The Business of Frontdoor Inc
Frontdoor Inc is a United States-based company that provides home service plans. It owns multiple home service brands including American Home Shield, HSA, OneGuard, and Landmark brands. Through its home service plans, the company helps its customers maintain their homes and protect against costly and unexpected breakdowns of essential home systems and appliances.
Currently priced at $30.61 per share, Frontdoor's stock appears to be modestly undervalued when compared to its GF Value of $38.48. This assessment provides an intriguing starting point for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates.
Our GF Value Line provides an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on our valuation method, Frontdoor (FTDR, Financial) appears to be modestly undervalued. Given its current price of $30.61 per share, Frontdoor's stock could offer higher future returns as it is relatively undervalued.
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Assessing Frontdoor's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Frontdoor has a cash-to-debt ratio of 0.56, which ranks worse than 50.96% of 104 companies in the Personal Services industry. Based on this, GuruFocus ranks Frontdoor's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Frontdoor
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Frontdoor has been profitable 8 out of the past 10 years. Over the past twelve months, the company had a revenue of $1.70 billion and Earnings Per Share (EPS) of $1.56. Its operating margin is 12.73%, which ranks better than 73.58% of 106 companies in the Personal Services industry. Overall, GuruFocus ranks the profitability of Frontdoor at 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth of Frontdoor is 8.1%, which ranks better than 68.04% of 97 companies in the Personal Services industry. However, the 3-year average EBITDA growth rate is -17.4%, which ranks worse than 84.21% of 76 companies in the Personal Services industry.
ROIC vs WACC
Comparing a company's return on invested capital to the weighted average cost of capital can provide insights into its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Frontdoor's return on invested capital is 18.56, and its cost of capital is 9.19.
Concluding Thoughts
In conclusion, the stock of Frontdoor (FTDR, Financial) appears to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 84.21% of 76 companies in the Personal Services industry. To learn more about Frontdoor stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
