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On Tuesday, JPMorgan analysts revised their stance on Frontdoor Inc. (NASDAQ:FTDR), downgrading the company’s stock rating from ’Overweight’ to ’Neutral’. Concurrently, they significantly reduced the price target for the home-service plan provider from $58.00 to $40.00. The stock, currently trading at a P/E ratio of 14x and showing a market capitalization of $2.93 billion, has experienced a significant decline over the past three months. According to InvestingPro analysis, the company’s Fair Value indicates potential upside from current levels. The downgrade comes amid concerns over gross margin pressures due to tariffs on steel and aluminum, as well as a challenging macroeconomic environment that is expected to affect the direct-to-consumer channel.
The analysts maintained their first-quarter estimates for Frontdoor, which align with the company’s guidance. However, they adjusted their 2025 revenue and adjusted EBITDA forecasts from the midpoint to the low-end of the company’s guidance. With current EBITDA at $379 million and a revenue growth forecast of 10% for FY2025, investors seeking deeper insights can access comprehensive analysis through InvestingPro’s detailed research reports, which cover over 1,400 US stocks. The analysts cited a projected 0% growth in the direct-to-consumer channel, which falls below the company’s guidance of above 5% growth.
The impact of the 25% tariffs on steel and aluminum imports, particularly the 45% from China, is expected to be more substantial than the $10 million annual headwind experienced during the tariffs imposed in President Trump’s first term. The analysts have consequently lowered their 2025 gross margin expectations to the low-end of the company’s 51.5-53% guidance, though it’s worth noting that the company currently maintains a healthy gross margin of 53.77%. InvestingPro subscribers can access additional financial health metrics and eight more exclusive ProTips about FTDR’s performance and outlook. They also anticipate a more significant reduction in the 2026 gross margin to 50% to account for a full year of tariff impacts.
Frontdoor may need to rely on price increases to mitigate the effects of the tariffs, but the analysts expressed concerns about the feasibility of this strategy in the current economic climate. They noted that this could be particularly challenging given the recent history of price increases and the ongoing decline in home warranty member count.
The analysts acknowledged Frontdoor’s strong execution in recent years and noted that the stock is trading at a trough multiple. Nonetheless, they downgraded the stock to ’Neutral’ due to the combination of tariff-related headwinds, macroeconomic uncertainty, and a depressed real estate market, which they believe will lead to a contraction in organic revenue and profit for 2025 based on their updated estimates.
In other recent news, Frontdoor, Inc. reported fourth-quarter earnings that exceeded analyst expectations, with adjusted earnings per share reaching $0.27 compared to the anticipated $0.06. Revenue for the quarter rose by 5% year-over-year to $383 million, surpassing the expected $374.46 million. Despite these strong results, the company’s first-quarter guidance fell short of estimates, projecting revenue between $410-420 million and adjusted EBITDA of $70-80 million. For the full year 2025, Frontdoor anticipates revenue growth of approximately 10%, reaching $2.0-2.04 billion, and projects adjusted EBITDA of $450-475 million. Additionally, Frontdoor completed its acquisition of 2-10 Home Buyers Warranty in December and repurchased approximately 4 million shares for $160 million in 2024. The company continues its marketing campaign with Rachel Dratch, introducing a video chat feature through American Home Shield to provide real-time assistance for home repair issues. This new service has reportedly helped nearly 20% of users resolve problems directly over the phone or receive guidance for DIY repairs. The campaign aims to highlight the convenience and peace of mind offered by home warranties.
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