Can ADT (ADT) Run Higher on Rising Earnings Estimates?

Investors in ADT Inc. ADT need to pay close attention to the stock based on moves in the options market lately. That is because the Nov 15, 2024 $12.00 Put had some of the highest implied volatility of all equity options today.

What is Implied Volatility?

Implied volatility shows how much movement the market is expecting in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other. It could also mean there is an event coming up soon that may cause a big rally or a huge sell-off. However, implied volatility is only one piece of the puzzle when putting together an options trading strategy.

What do the Analysts Think?

Clearly, options traders are pricing in a big move for ADT shares, but what is the fundamental picture for the company? Currently, ADT is a Zacks Rank #1 (Strong Buy) in the Security and Safety Services industry that ranks in the Top 39% of our Zacks Industry Rank. Over the last 60 days, one analyst has increased the earnings estimates for the current quarter, while none have dropped their estimates. The net effect has taken our Zacks Consensus Estimate for the current quarter from earnings of 17 cents per share to 20 cents in that period.

Given the way analysts feel about ADT right now, this huge implied volatility could mean there’s a trade developing. Oftentimes, options traders look for options with high levels of implied volatility to sell premium. This is a strategy many seasoned traders use because it captures decay. At expiration, the hope for these traders is that the underlying stock does not move as much as originally expected.

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Zacks Investment Research

Here are five stocks added to the Zacks Rank #1 (Strong Buy) List today:

American Assets Trust, Inc. AAT: This self-administered real estate investment trust has seen the Zacks Consensus Estimate for its current year earnings increasing 10% over the last 60 days.

American Assets Trust, Inc. Price and Consensus

American Assets Trust, Inc. price-consensus-chart | American Assets Trust, Inc. Quote

Quad/Graphics, Inc. QUAD: This marketing solutions company has seen the Zacks Consensus Estimate for its current year earnings increasing 10.5% over the last 60 days.

Quad Graphics, Inc Price and Consensus

Quad Graphics, Inc price-consensus-chart | Quad Graphics, Inc Quote

Corcept Therapeutics Incorporated CORT: This drugmaker for severe endocrinologic, oncologic, metabolic, and neurologic disorders has seen the Zacks Consensus Estimate for its current year earnings increasing 13.6% over the last 60 days.

Corcept Therapeutics Incorporated Price and Consensus

Corcept Therapeutics Incorporated price-consensus-chart | Corcept Therapeutics Incorporated Quote

Comerica Incorporated CMA: This company that provides financial products and services has seen the Zacks Consensus Estimate for its current year earnings increasing 6.3% over the last 60 days.

Comerica Incorporated Price and Consensus

Comerica Incorporated price-consensus-chart | Comerica Incorporated Quote

ADT Inc. ADT: This smart home solutions providing company has seen the Zacks Consensus Estimate for its current year earnings increasing 12.1% over the last 60 days.

ADT Inc. Price and Consensus

ADT Inc. price-consensus-chart | ADT Inc. Quote

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

Here are three stocks with buy rank and strong value characteristics for investors to consider today, November 5th:

Quad/Graphics, Inc. QUAD: This marketing solutions company carries a Zacks Rank #1, and has witnessed the Zacks Consensus Estimate for its current year earnings increasing 10.5% over the last 60 days.

Quad Graphics, Inc Price and Consensus

Quad Graphics, Inc price-consensus-chart | Quad Graphics, Inc Quote

Quad/Graphics has a price-to-earnings ratio (P/E) of 7.57, compared with 15.10 for the industry. The company possesses a Value Score of A.

Quad Graphics, Inc PE Ratio (TTM)

Quad Graphics, Inc pe-ratio-ttm | Quad Graphics, Inc Quote

ADT Inc. ADT: This smart home solutions providing company carries a Zacks Rank #1, and has witnessed the Zacks Consensus Estimate for its current year earnings increasing 12.1% over the last 60 days.

ADT Inc. Price and Consensus

ADT Inc. price-consensus-chart | ADT Inc. Quote

ADT has a price-to-earnings ratio (P/E) of 9.80, compared with 14.70 for the industry. The company possesses a Value Score of A.

ADT Inc. PE Ratio (TTM)

ADT Inc. pe-ratio-ttm | ADT Inc. Quote

American Assets Trust, Inc. AAT: This self-administered real estate investment trust carries a Zacks Rank #1, and has witnessed the Zacks Consensus Estimate for its current year earnings increasing 10% over the last 60 days.

American Assets Trust, Inc. Price and Consensus

American Assets Trust, Inc. price-consensus-chart | American Assets Trust, Inc. Quote

American Assets has a price-to-earnings ratio (P/E) of 10.53, compared with 14.70 for the industry. The company possesses a Value Score of B.

American Assets Trust, Inc. PE Ratio (TTM)

American Assets Trust, Inc. pe-ratio-ttm | American Assets Trust, Inc. Quote

See the full list of top ranked stocks here.

Learn more about the Value score and how it is calculated here.

Zacks Investment Research

Believe it or not, seniors fear running out of cash more than they fear dying.

Also, retirees who have constructed a nest egg have valid justifications to be concerned, since the traditional ways to plan for retirement may mean income can no longer cover expenses. Some retirees are now tapping their principal to make a decent living, pressed for time between decreasing investment balances and longer life expectancies.

The tried-and-true retirement investing approach of yesterday doesn't work today.

Years ago, investors at or close to retirement could put money into fixed-income assets and depend on appealing yields to generate consistent, solid pay streams to fund a comfortable retirement. 10-year Treasury bond rates in the late 1990s floated around 6.50%, but unfortunately, those days of being able to exclusively rely on Treasury yields to fund retirement income are over.

That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is more than $1 million.

And lower bond yields aren't the only potential problem seniors are facing. Today's retirees aren't feeling as secure as they once did about Social Security, either. Benefit checks will still be coming for the foreseeable future, but based on current estimates, Social Security funds will run out of money in 2035.

So what's a retiree to do? You could cut your expenses to the bone, and take the risk that your Social Security checks don't shrink. Or you could find an alternative investment that provides a steady, higher-rate income stream to replace dwindling bond yields.

Invest in Dividend Stocks

Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace low risk, low yielding Treasury and bond options.

Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.

One approach to recognizing appropriate stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks hike dividends over time, counterbalancing inflation risks.

Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.

ADT (ADT)

is currently shelling out a dividend of $0.06 per share, with a dividend yield of 3.06%. This compares to the Security and Safety Services industry's yield of 0% and the S&P 500's yield of 1.54%. The company's annualized dividend growth in the past year was 57.14%. Check ADT dividend history here>>>

Kite Realty Group (KRG)

is paying out a dividend of $0.27 per share at the moment, with a dividend yield of 4.05% compared to the REIT and Equity Trust - Retail industry's yield of 3.87% and the S&P 500's yield. The annualized dividend growth of the company was 4.17% over the past year. Check Kite Realty Group dividend history here>>>

Currently paying a dividend of $0.5 per share,

Portland General Electric (POR)

has a dividend yield of 4.22%. This is compared to the Utility - Electric Power industry's yield of 3.21% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.26%. Check Portland General Electric dividend history here>>>

But aren't stocks generally more risky than bonds?

It is true that stocks, as an asset class, carry more risk than bonds, but high-quality dividend stocks not only have the ability to produce income growth over time but more importantly, can also reduce your overall portfolio volatility relative to the broader stock market.

An advantage of owning dividend stocks for your retirement nest egg is that numerous companies, particularly blue chip stocks, raise their dividends over time, helping alleviate the impact of inflation on your potential retirement income.

Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.

If you're thinking, "I want to invest in a dividend-focused ETF or mutual fund," make sure to do your homework. It's important to know that some mutual funds and specialized ETFs charge high fees, which may diminish your dividend gains or income and thwart the overall objective of this investment strategy. If you do want to invest in fund, research well to identify the best-quality dividend funds with the least charges.

Bottom Line

Seeking steady, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs, or in dividend-paying stocks.

Zacks Investment Research

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One company to watch right now is ADT (ADT). ADT is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A. The stock is trading with a P/E ratio of 9.47, which compares to its industry's average of 26.55. Over the past 52 weeks, ADT's Forward P/E has been as high as 18.42 and as low as 8.38, with a median of 9.73.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. ADT has a P/S ratio of 1.38. This compares to its industry's average P/S of 1.45.

These are only a few of the key metrics included in ADT's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, ADT looks like an impressive value stock at the moment.

Zacks Investment Research