Frontdoor, Inc. (FTDR): what the price assumes

In the published model solve dated 2026-Q2, anchored at $82.50, Frontdoor, Inc. (FTDR) is priced for +7.3% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-26.

Generated: 2026-08-30 · Source: https://boothcheck.com/report/FTDR

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 8.7% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: n/a

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.9%); the inversion above states its own rate.

Per-Model Detail (n=13)

Economic-Unit Decomposition (Sum Of The Parts)

Only one reportable economic unit is present in the current topology source. Consolidated operating lenses remain available, but there is no multi-unit decomposition.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Bullet Takeaways

• About three quarters of revenue is renewal revenue, households re-upping a home warranty they first bought in an earlier year, which is why the company measures customer retention on a rolling twelve-month basis rather than quarter by quarter.
• Volume is the soft spot: the number of home warranties sat unchanged at 2.10 million in the March quarter while revenue rose 6%, five points of which came from higher realized price and one point from volume.
• Second-quarter results are due August 6, 2026, against a reaffirmed full-year revenue outlook of 2.155 billion to 2.195 billion dollars and total member count guided to rise about 1%.

Bull Case

Net income in the March quarter was 41 million dollars. Free cash flow in the same three months was 114 million dollars, nearly three times as much. That gap is not an accounting curiosity to be adjusted away. It is the entire shape of the business. A homeowner pays for a warranty contract before the water heater fails, and the contractor gets paid afterward, sometimes a long time afterward. Money sits in between. Cash on the balance sheet stood at 603 million dollars on March 31, 2026, against a company that books a little over two billion dollars of revenue a year.

Gross profit was 55% of revenue in the quarter, flat against a year earlier, which for a business whose cost of goods sold is other people fixing air conditioners is a strange and durable number. The 10-K explains where it comes from: We realize significant economies of scale as a result of our volume of home warranty service requests. Frontdoor buys parts, appliances and contractor hours at a volume no regional competitor can match, and it buys them for a book of roughly 2.10 million warranties whose claims are statistically predictable in aggregate even though each individual one is not. The filing also notes that the company is one of the few companies that provide home warranties nationwide, which in a category defined by local contractor networks is the whole competitive point.

The delivery mechanism has quietly gone digital, which matters because service requests are the expensive part of the cost line. Per the FY2025 10-K, Approximately 47 percent of our home warranty DTC sales in 2025 were made online, and more than 60 percent of our total service request volume for home warranties was entered online or through our interactive voice response system. Every request routed through software rather than a call center takes cost out of a margin that is already unusual for the trade.

Compare the trade. ROL, the pest-control operator built on the same logic of small recurring payments for a service customers rarely think about, runs a 19.0% operating margin on 3.84 billion dollars of revenue with 11.0% top-line growth. APG earns 7.0% on 8.17 billion dollars, and ABM 3.5% on 9.05 billion. Contracted field services is normally a thin business. The prepaid, recurring versions of it are not, and Frontdoor sits on the profitable side of that split at roughly a quarter of ABM's revenue base.

Capital allocation has been blunt and consistent. Shares outstanding fell from 75,314,243 at the end of 2024 to 70,958,215 at the end of 2025, a reduction of nearly six percent in a single year, with 329 million dollars still authorized for repurchase through September 4, 2027. No dividend, no empire building beyond one deal: total consideration paid for the 2-10 Home Buyers Warranty acquisition was 604 million dollars, which bought a new-home-builder warranty business and put Frontdoor at the moment a house is finished rather than only at the moment it changes hands.

The obvious objection is that the member count has not grown, and price increases are not an infinite lever. Fair. But the first-year channels, the ones that feed the renewal book years later, grew members 3% in the March quarter, and management has guided first-year member count up roughly 5% for the year. A subscription business fixes its renewal base one cohort at a time, and that is where the cohorts come from.

Bear Case

Two point one million households held a Frontdoor home warranty at the end of March 2026. Two point one million held one a year earlier. Revenue still rose 6%, because the company charged the same book more: five points of the increase came from realized price and one point from volume. Meanwhile direct-to-consumer revenue fell 5%, and the reason given is that the company cut price on purpose to win members back. Put those two facts side by side and the shape is a business raising prices on the customers it already has in order to fund discounts for the ones it does not.

That matters because of what the price is underwriting. The market is paying about 14.5 times company-wide operating income, which needs only about 2.3% annual operating growth to hold up over a five-year stage. The demand is not aggressive, and that is precisely the trap: it is a demand for permanence rather than for speed. Against the static methods the price already carries a premium. It sits roughly 61% above where the earnings-power methods land, about 50% above the peer-multiple methods, and about 47% above the asset-value methods. The cash-flow projections are the one family that reaches it, and they get there by letting growth run at a constant rate in perpetuity. If renewal pricing runs out of room before that permanence is demonstrated, the multiple has three separate families of method sitting below it to fall toward.

The cost line has been receiving help that is not repeatable. Contract claims costs rose 6 million dollars in the March quarter beyond the effect of higher revenue, on low-single-digit inflation across the contractor network and more service requests per member. Pushing the other way, the quarter booked 6 million dollars of favorable claims development against 7 million a year earlier. Favorable development means yesterday's reserves turned out to be too big, which is real money, and it is also a finite one. Weather has been cooperative too. The latest 10-Q says so directly: favorable weather trends in 2025 as compared to 2024 resulted in a lower number of home warranty service requests per customer in the HVAC trade, which favorably impacted contract claims costs. A hot summer reverses that sentence.

The 2-10 Home Buyers Warranty deal added something the legacy business never had, which is genuine underwriting risk. The FY2025 10-K is unusually plain about it: Our business, financial position, results of operations and cash flows depend on our ability to underwrite and appropriately price the risks of providing new home builder warranties. A home warranty on a twelve-year-old furnace is a claims-frequency problem with decades of internal data behind it. A structural warranty on a newly built house is an actuarial problem with a long tail, and the filing acknowledges that a mispriced book may leave our pricing being based on stale, inadequate or inaccurate data or inappropriate analyses, assumptions or methodologies.

Then there is the housing market itself, which supplies the real-estate channel and, indirectly, the future renewal cohorts. On elevated rates the 10-Q states: We believe this environment continues to impact demand for home warranties. The company's term loans carry variable rates, partly offset by an interest rate swap, so the same rate environment that suppresses home transactions also sets part of the interest bill. Neither of those is a solvency question at current coverage. Both are a growth question, and growth is the only thing the price is asking for.

Valuation

Strip the question down and the market is buying a subscription book at about 14.5 times company-wide operating income. Solve backwards from there and the embedded assumption is roughly 2.3% annual growth in operating profit over a five-year stage, discounted at 8.6% with 4% terminal growth. That is a modest requirement by any standard, and it should be read as approximate rather than measured: each percentage point of movement in the cost of capital shifts the implied growth rate by about 5.5 points, so the number describes a direction, not a threshold.

Where the methods disagree is more informative than the single figure. Take the earnings-power approaches, which capitalize the cash the business currently throws off and assume no growth at all: today's quote carries a premium of roughly 61% above the earnings-power central estimate. Peer-multiple work sits in a similar place, a premium of about 50% above the peer-multiple central estimate, with the asset-value approaches about 47% above the asset-value central estimate. The cash-flow projections are the one family that reaches today's quote, and the mechanism is not subtle. The route runs through the current free cash flow base, projected forward and then compounded at 4% without end. The difference between "capitalize what exists" and "compound what exists forever" is the entire premium, and for a renewal-driven subscription business that is a defensible thing to argue about rather than a modelling error.

Against its own cohort the multiple is not stretched. Frontdoor sits in the lower half of the peer multiple range for its sector, and the operating economics justify sitting higher rather than lower within it: ROL earns a 19.0% operating margin on 3.84 billion dollars of revenue, while APG earns 7.0% and ABM 3.5% on considerably larger revenue bases. Frontdoor runs a gross profit margin of 55% and management has guided the full year to a range of 54% to 55%, with selling and administrative expense of 660 million to 680 million dollars. Those are the filing-sourced inputs the whole build rests on, and they have been stable.

The balance sheet is not the constraint here. Cash stood at 603 million dollars on March 31, 2026, of which 448 million dollars was unrestricted, against gross borrowings a little over 1.1 billion dollars. Net debt is about 1.46 times operating profit, and operating profit covers the interest bill roughly 5 times over. The share count has fallen at about 3.3% a year since early 2022, which is buyback deployment showing up in the one place it cannot be dressed up. A company retiring stock every year while holding two quarters of revenue in cash is not one whose downside runs through a financing accident.

What the price is actually exposed to is duration. The bet is not that Frontdoor grows quickly; the arithmetic asks for very little of that. The bet is that a book of 2.10 million warranties renews, year after year, at prices that rise faster than the cost of sending someone to fix a furnace, for long enough that a modest growth rate compounds into a large number.

Catalysts

The March-quarter print, released April 30, 2026, was clean on the lines management controls. Revenue rose 6% to 451 million dollars, gross profit held at 55% of revenue, net income rose 11% to 41 million dollars, and diluted earnings per share rose 18% to $0.57 from $0.49. The 18% earnings-per-share gain against an 11% earnings gain is the buyback doing its arithmetic. Channel detail underneath was more mixed than the headline: renewals rose 6% to 352 million dollars on rate alone, the real-estate channel rose 3% on volume with realized rates moving the other way, direct-to-consumer fell 5% on deliberate promotional pricing, and the non-warranty line rose 23% to 41 million dollars on the growth of the HVAC upgrade program.

Guidance was reaffirmed rather than raised. For the full year the company expects revenue of 2.155 billion to 2.195 billion dollars, built on a 2% to 3% realized rate increase and a 1% to 2% volume increase, with 220 million to 240 million dollars of non-warranty and other revenue, gross profit of 54% to 55% of revenue, selling and administrative expense of 660 million to 680 million dollars, capital expenditure of 30 million to 35 million dollars, and an effective tax rate near 25%. Total home warranty member count is guided up roughly 1%, with the first-year member count up roughly 5%. For the June quarter specifically, management guided revenue of 635 million to 650 million dollars.

Second-quarter results are scheduled for August 6, 2026. The line to watch is not revenue, which price increases will largely deliver, but the first-year member count that feeds the renewal book in later years. On the governance side, the board elected Hilla Sferruzza as a director and appointed her to the audit committee effective June 29, 2026, expanding the board to nine members; she is chief financial officer of a homebuilder, which is a relevant seat to fill in the year after a new-home-builder warranty acquisition.

Peer Cohorts (Per Segment, With Filing Citations)

Home Warranty (single operating segment) (reported)

• ROL (ROLLINS INC)
• FY2025 10-K: …as operating leases. Building leases generally carry terms of 5 to 10 years with annual rent escalations at fixed amounts per the lease. Vehicle leases generally carry a fixed term of one year with renewal options to extend the lease on a monthly basis resulting in lease terms up to 7 years depending on the class of…
• FY2025 10-K: …restricted stock units ("restricted shares") and performance share units ("PSUs") have been issued to officers and other management employees under the Company's Employee Stock Incentive Plan. The Company issues new shares from its authorized but unissued share pool. Restricted shares and PSUs provide for the…
• APG (APi Group Corporation)
• FY2025 10-K: …across our businesses provides significant cross-selling opportunities to leverage our current project base, existing relationships, and professional expertise to provide additional services to our existing customers. In North America, we provide a single point of contact for customers with a regional or national…
• FY2025 10-K: …the HVAC business from the Safety Services segment to the Specialty Services segment, and segment-related prior period amounts have been recast to reflect this adjustment as of the beginning of the period presented. As a result of the reallocation of goodwill between reportable segments, the Company performed an…
• ABM (ABM INDUSTRIES INCORPORATED)
• FY2025 10-K: …or airplane cabins cleaned). Hourly In hourly arrangements, the client is billed a fixed hourly rate for each labor hour provided. Management Reimbursement Under these parking arrangements, we manage a parking facility for a management fee and pass through the revenue and expenses associated with the facility to the…
• FY2025 10-K: …cost-plus, and work order contracts. (2) Aviation Services arrangements support airlines and airports with services such as passenger assistance, catering logistics, and airplane cabin maintenance. These arrangements are often structured as monthly fixed-price, cost-plus, transaction price, and hourly contracts. (3)…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.