IoT-enabled Homes And AI Will Drive Safer, Greener Futures

Key Takeaways

• Strategic divestitures and focused product innovation position the company for margin expansion, improved capital allocation, and long-term earnings outperformance.
  
• Strong demand for smart home solutions and superior software capabilities set the stage for recurring revenue growth and industry leadership in intelligent building technologies.
  
• Growing competition from tech giants, limited innovation, reliance on legacy products, and exposure to regulatory and supply chain risks threaten Resideo's growth and profitability.

Catalysts

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

• Analysts broadly agree that new product introductions and pipeline expansion will boost revenue, but early sales of the FocusPRO thermostats and connected safety devices have already triggered record highs, suggesting the growth rate could accelerate meaningfully, especially as home automation adoption enters an inflection point, potentially doubling annual revenue within key categories over the next several years.
  
• Analyst consensus sees gross margin expansion from structural improvements, but management's explicit long-term 45% to 50% gross margin target, backed by sustained operational excellence and premium product mix, indicates substantial upside to net margins and earnings far beyond current market expectations.
  
• The planned spin-off of the ADI business and elimination of remaining Honeywell indemnification obligations will create two focused pure-play companies with more efficient capital allocation, driving clearer strategic execution and unlocking significant shareholder value through greater margin clarity and potential rerating of both stocks.
  
• With the rapid uptick in e-commerce and digital channel penetration, alongside strengthened relationships with top integrators and a record pipeline in commercial security and automation, Resideo is uniquely positioned to capture outsized share of the accelerating demand for connected, energy-efficient, and secure homes, leading to sustained revenue and EBITDA outperformance.
  
• As demographic shifts and regulatory imperatives drive a multidecade investment cycle in smarter, safer, and greener homes, Resideo's leadership in integrated software, AI-powered analytics, and aftermarket subscriptions positions it for best-in-class recurring revenue growth and long-term earnings compounding as the adoption of intelligent building solutions massively expands.

Resideo Technologies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Resideo Technologies compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Resideo Technologies's revenue will grow by 2.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -11.0% today to 5.6% in 3 years time.
• The bullish analysts expect earnings to reach $441.2 million (and earnings per share of $3.78) by about August 2028, up from $-816.0 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 bullish analyst cohort, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, up from -4.9x today. This future PE is lower than the current PE for the US Building industry at 22.3x.
• Analysts expect the number of shares outstanding to grow by 1.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.45%, as per the Simply Wall St company report.

Resideo Technologies Future Earnings Per Share Growth

Risks

• Accelerating adoption of fully integrated smart home platforms led by major technology companies such as Amazon and Google could commoditize Resideo's product lines including thermostats and detectors, putting sustained pressure on both average selling prices and gross margins, ultimately impacting the company's long-term earnings growth.
  
• Persistent underinvestment in research and development relative to larger ecosystem competitors, as indicated by the company's reliance on product partnerships and acquisitions like Snap One and First Alert, may hamper Resideo's ability to innovate and keep pace with rapidly evolving consumer preferences, risking future revenue streams as products become outdated or less competitive.
  
• Resideo's ongoing dependence on legacy and hardware-centric products, along with flat or declining performance in core channels like security and HVAC, increases the risk of margin erosion as the industry shifts to subscription-based, software-driven, and more sustainable solutions, which may lead to slower top-line revenue growth.
  
• The company's strategic reliance on successful integration of major acquisitions such as Snap One-and the upcoming spin-off of ADI-exposes it to significant execution risk; any setbacks, inefficiencies, or failure to realize promised synergies could drive up operating costs and reduce profitability over the medium to long term.
  
• Heightened regulatory and market demand for environmentally sustainable solutions, alongside increased supply chain complexity and exposure to tariffs and trade policy uncertainties, could render Resideo's existing product mix less attractive or more expensive to manufacture, putting pressure on both revenues and net earnings.

Valuation

• The assumed bullish price target for Resideo Technologies is $35.0, which is the highest 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 bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $24.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $7.9 billion, earnings will come to $441.2 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of $26.91, the bullish analyst price target of $35.0 is 23.1% 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.