We view RMR as an appropriate valuation proxy since the measure is a key component in observing normalized FCF trends and is indicative of overall asset base growth. Our PT of $10 is based on our 42x-45x EV/RMR target on our exit run-rate RMR estimate of $369 million ending 2025. Our target RMR multiple range is in line with the the stock's average, near 44x, since 2018 and ~5-6 turns below peak levels achieved seven times since the company's IPO. Our $10 target price implies a ~10% Adj. Levered FCF -to- Equity yield vs. our 2025 estimates and an 11% Adj. Levered FCF -to- Equity yield vs. our 2026 estimates.

Risks to our thesis are: (i) higher/lower levels of churn, (ii) execution setbacks relating to ADT's partnerships with Google and State Farm, (iii) increasing competition from both traditional competitors and/or Big tech new entrants, (iv) increasing acceptance of automated alarm systems, reducing the relevancy of professional security monitoring, (v) technical pressure from PE overhang, and (vi) slower/faster-than-expected debt pay-down. If the impact on the company from any of these factors proves to be more negative than we anticipate, the stock will likely have difficulty achieving our financial and price targets. Likewise, if any of these factors proves to have less of an effect than we anticipate, the stock could materially outperform our target.