-- ADT (ADT) posted a Q1 earnings beat driven by better-than-expected margins and free cash flow, though revenue and subscriber growth remained muted, Morgan Stanley said Thursday in a report.
Adjusted free cash flow rose more than 80% to $401 million from a year earlier, beating estimates by 50%, while adjusted EBITDA also topped expectations as margins expanded 60 basis points, Morgan Stanley said. Some of the upside was "partially driven by timing" that is expected to reverse later in the year, the report said.
Revenue growth was 0.9%, in line with expectations, as soft gross subscriber additions and elevated attrition continued to pressure results, the report said. ADT provides monitored home-security and smart-home services.
Accelerating subscriber growth remains key for a re-rating, Morgan Stanley said. The upcoming ADT Blu DIY launch, rolling out on ADT's site in May and to e-commerce platforms in the summer, could provide a tailwind by targeting more cost-conscious customers, though long-term economics in the DIY channel remain "uncertain," the report said.
Morgan Stanley raised its 2026 adjusted EPS estimate by 2% and expects Q2 earnings and free cash flow to decline sequentially due to higher marketing costs tied to the DIY rollout. Still, ADT's recurring revenue base and improving cash-flow profile offer "valuation support" despite industry headwinds, the report said.
Morgan Stanley increased its price target on ADT stock to $7.50 from $7 and maintained its equal-weight rating.
Price: $7.56, Change: $+0.02, Percent Change: +0.33%