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Bear Of The Day: FrontDoor (FTDR)

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FrontDoor (FTDR - Free Report) is a Zacks Rank #5 (Strong Sell) after missing on the bottom line in the most recent earnings release.  With the economy looking at the real possibility of a recession investors are not going to be kind to stocks that miss earnings.  Let’s look at why this stock is a Zacks Rank #5 (Strong Sell) and in this Bear of the Day article.

Description

Frontdoor Inc. is the parent company of home service plan brands consisting of American Home Shield, HSA, Landmark and OneGuard. The company's customizable home service plans help customers protect and maintain their homes from costly and unplanned breakdowns of essential home systems and appliances. Frontdoor Inc. is based in TN, United States.

Earnings History

When I look at a stock, the first thing I do is look to see if the company is beating the number.  This tells me right away where the market’s expectations have been for the company and how management has communicated to the market.  A stock that consistently beats has management communicating expectations to Wall Street that can be achieved.  That is what you want to see.

In the case of FTDR, I see two straight misses which preceeded two straight beats of the  Zacks Consensus Estimate.   This alone does not make the stock a Zacks Rank #1 (Strong Buy) and it doesn’t make it a Zacks Rank #5 (Strong Sell) either.

The Zacks Rank does care about the earnings history, but it is much more heavily influenced by the movement of earnings estimates.

Earnings Estimates

The Zacks Rank tells us which stocks are seeing earnings estimates move higher or in this case lower.  For FTDR I see annual estimates moving lower.

The current year 2022 consensus number has dropped from $1.80 to $1.37 over the last 60 days.

The next year has dropped from $2.21 to $1.94 over the same time period.

Negative movement in earnings estimates like that is why this stock is a Zacks Rank #5 (Strong Sell).

It should be noted that a majority of stocks in the Zacks universe are seeing negative earnings estimate revisions.  That means that the stocks that are seeing small but negative earnings estimate revisions are falling to a Zacks Rank #5 (Strong Sell).

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