FTDR - Frontdoor: Positive 2024 Growth Outlook But Lacks Margin Of Safety

2024-01-31 00:25:48 ET

Summary

• Frontdoor is the leading provider of home service plans in the US, as measured by revenue.
• FTDR has experienced decelerating revenue growth and contracting margins due to the challenging real estate market and inflationary cost pressures. However, the housing market is anticipated to recover in 2024.
• Despite the challenges, FTDR reported strong earnings in 3Q23, driven by its price increases and growth in its renewal channel.
• However, its share price lacks a margin of safety based on my conservative valuation; therefore, I recommend a hold rating.

Synopsis

For every American homeowner, much effort and expertise in home servicing is needed in maintaining their living space, especially to avoid costly breakdowns of their essential appliances and home systems. With over 50 years of experience in home repair and maintenance and over 75 million service requests, Frontdoor ( FTDR ) is the leading provider of home service plans in the US as measured by revenue. It primarily operates under the American Home Shield brand. In general, customers subscribe to its annual service plan, which covers the repair or replacement of essential parts of appliances and home systems. FTDR also offers on-demand home services and a recently launched digital app for home repair and maintenance. Customers have on-demand access to FTDR’s network of professionals that helps them get repairs, services, and upgrades. This is accompanied by its app-based interaction, where customers get a live chat with an expert. As of September 2023, there are 2.0 million service plans active in the US. Summarizing its two main brands, American Home Shield sells annual home warranties, and Frontdoor focuses on on-demand home services....

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