The Company now expects to sell between 12,000 to 20,000 Telguard units per quarter for the third and fourth fiscal quarters of 2010. This is a decrease from a previous estimate of 30,000 to 40,000 units per quarter for the remainder of fiscal 2010 as previously reported. The reduced guidance is the direct result of a change in pricing terms within agreements between ADT and its network of authorized dealers who sell and install security equipment and represent ADT in the sale of monthly monitoring services.
This guts the long term earnings growth from 20-25% to 10-15% by my calculations. It also brings the churn rate (1%) into question since a major portion of the existing recurring revenue base is from ADT dealers, although it would probably be too expensive for the dealers to switch these units out.
Based on this information the stock could hover in the upper 2’s low 3’s until there is more clarity on where future growth will come from. No doubt this was a blow to the company since they no longer focus on FWT’s and the TankLink acquisition has not come close to the original expectations.
Bottom line, the growth story isn’t as bright as it once and I would not be a buyer at this point.