Smart Home Headwinds Will Challenge Overvaluation Yet Offer Recovery

Key Takeaways

• Growing competition from large tech companies and dependence on distribution partners threaten Resideo’s market share and limit future revenue opportunities.
  
• Regulatory pressures, weak proprietary innovation, and rapid product obsolescence could compress margins and undermine long-term profitability.
  
• Strong smart home demand, product innovation, and operational efficiency are driving sustainable growth, margin expansion, and resilience amid macroeconomic uncertainties for Resideo.

Catalysts

Develops, manufactures, sells, and distributes comfort, energy management, and safety and security solutions in the United States, Europe, and internationally.

• The rapid expansion of integrated smart home platforms by global technology leaders such as Amazon, Google, and Apple threatens to erode Resideo’s market share, as consumers and installers may increasingly favor fully unified ecosystems over Resideo’s offerings, undermining both future revenue growth and long-term competitive positioning.
  
• The company’s ongoing dependence on distributor and professional installer channels exposes it to disruption, as sector-wide labor shortages among skilled trades and a broader industry shift toward direct-to-consumer distribution could decrease product throughput and curb top-line expansion.
  
• Increasing pressure from more stringent consumer privacy regulations and heightened data security standards is likely to force Resideo into higher compliance and operational costs, which could significantly compress operating margins and risk future profitability, especially as connected device penetration rises.
  
• Heavy reliance on third-party brands, legacy Honeywell Home licensing, and insufficient investment in proprietary research and development threaten to commoditize Resideo’s product portfolio, leading to reduced differentiation, diminishing pricing power, and ultimately weaker gross margins over the long term.
  
• Accelerating product obsolescence and shorter hardware lifecycles in the smart home and security space increase the risk of higher inventory write-downs and greater capital tied up in aging stock, which will negatively impact net earnings and hamper the company’s ability to fund future innovation.

Resideo Technologies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Resideo Technologies compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Resideo Technologies's revenue will grow by 4.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.6% today to 3.8% in 3 years time.
• The bearish analysts expect earnings to reach $301.9 million (and earnings per share of $2.33) by about July 2028, up from $45.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.0x on those 2028 earnings, down from 81.4x today. This future PE is lower than the current PE for the US Building industry at 21.1x.
• Analysts expect the number of shares outstanding to grow by 1.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.21%, as per the Simply Wall St company report.

Resideo Technologies Future Earnings Per Share Growth

Risks

• Persistent strength in smart home adoption and the growing market for connected devices is fueling increased demand for Resideo’s products, as indicated by robust sales of new thermostats and connected alarms, which could support long-term revenue growth.
  
• The company’s proven ability to successfully launch new products and expand gross margins for eight consecutive quarters, along with efficient factory utilization and ongoing supply chain improvements, is driving structural operating leverage that may lead to sustained margin expansion and higher earnings.
  
• Effective integration of the Snap One acquisition and advancement in cross-selling initiatives are contributing to organic net revenue growth, higher gross margin from margin-accretive product categories, and accelerating product introductions, which can further enhance both top line growth and profitability.
  
• Resideo’s ability to mitigate tariff-related pressures through price increases, regionalized manufacturing, and supplier negotiations is preserving gross profit dollars and stabilizing net margins, demonstrating strong execution even amid an uncertain macro environment.
  
• Secular tailwinds such as the aging North American housing stock, increasing content per new home, energy-efficiency trends, and rising property management demand are expected to underpin ongoing replacement and upgrade cycles, providing resilience and long-term revenue visibility for Resideo.

Valuation

• The assumed bearish price target for Resideo Technologies is $21.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Resideo Technologies's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.0, and the most bearish reporting a price target of just $21.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $7.9 billion, earnings will come to $301.9 million, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 9.2%.
• Given the current share price of $24.68, the bearish analyst price target of $21.0 is 17.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.