Snap One Integration And New Products Will Strengthen Future Market Position

Key Takeaways

• Structural improvements and operational efficiency enhancements are driving profitability while expanding gross and net margins.
  
• Product introductions and acquisitions like Snap One integration are expected to boost revenue and earnings growth.
  
• Mixed global macroeconomic conditions and competitive pressures could hinder Resideo's revenue growth, margins, and stability, despite new products and synergies from acquisitions.

Catalysts

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

• Resideo's focus on new product introductions, such as the Focus Pro thermostat and VISTA security products, and planned launches in 2025, suggests an expectation of increased future revenue from these expanded offerings.
  
• Structural improvements that have led to increased operational efficiency and gross margin expansion create a positive catalyst for improving net margins and overall profitability.
  
• The acquisition and successful integration of Snap One, which brought higher-than-expected synergies, are anticipated to drive both revenue growth and future earnings improvements.
  
• Investments in digital channels and e-commerce strategies are expected to continue accelerating revenue growth and contribute to better margin performance due to their accretive nature.
  
• The focus on strengthening customer relationships and comprehensive strategies to manage potential tariff changes imply a potential for maintaining or increasing revenue despite external macroeconomic pressures.

Resideo Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Resideo Technologies's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.3% today to 3.7% in 3 years time.
• Analysts expect earnings to reach $287.7 million (and earnings per share of $1.84) by about March 2028, up from $91.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.0x on those 2028 earnings, down from 28.3x today. This future PE is greater than the current PE for the US Building industry at 19.8x.
• Analysts expect the number of shares outstanding to grow by 1.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.89%, as per the Simply Wall St company report.

Resideo Technologies Future Earnings Per Share Growth

Risks

• Resideo faces potential adverse impacts from a mixed global macroeconomic environment, including continued U.S. dollar strength and potential changes in tariffs, posing uncertainties for revenue and margins.
  
• The security channel is experiencing soft market conditions, which could negatively impact revenue growth and profits within this segment, despite optimistic signs for new product introductions.
  
• Despite positive growth in certain areas, the ADI business segment mentioned facing more competitive pricing pressures, particularly in the fourth quarter, which could impact overall gross margins and profits.
  
• There is a cautionary note on the macroeconomic outlook for 2025, with persistent global inflation and a soft existing U.S. home resale market, potentially affecting revenue growth and net margins.
  
• The acquisition of Snap One has synergistic benefits, but ongoing integration and execution risks could affect the expected increase in earnings and operational efficiency, impacting net margins and earnings stability.

Valuation

• The analysts have a consensus price target of $28.333 for Resideo Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $31.0, and the most bearish reporting a price target of just $25.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.8 billion, earnings will come to $287.7 million, and it would be trading on a PE ratio of 20.0x, assuming you use a discount rate of 9.9%.
• Given the current share price of $17.43, the analyst price target of $28.33 is 38.5% higher.
• 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.