Frontdoor, Inc. (FTDR): what the price requires
At today's price, Frontdoor, Inc. (FTDR) is priced for +3.3% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/FTDR
Headline
| Field | Value |
|---|---|
| Ticker | FTDR |
| Company | Frontdoor, Inc. |
| Current price | $74.57/sh |
| Composition | Renewals 76% / Real estate 7% / Direct-to-consumer 8% / Non-warranty and other 9% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 4.9% |
| Operating margin today | 18.3% |
| Margin compression implied | -13.4pp |
| Implied growth | 3.3% |
| Multiple paid | 15x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 8.6% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~5.6pp.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -1.53σ |
| cohort percentile (of 225 peers) | 22 |
| implied end-window share | 0% |
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.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 1.53x | 4 | expensive |
| Earnings | 1.68x | 3 | expensive |
| Relative | 1.56x | 3 | expensive |
| Growth | 0.69x | 3 | justifies |
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 7.8%); the inversion above states its own rate.
Per-Model Detail (n=13)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $177.82 | 0.42x | yes | FCF base $0.4B, growth 12% (input: historical growth), terminal g 4.0%, WACC 7.8%, 6yr projection |
| DCF Exit Multiple | Growth | $107.74 | 0.69x | yes | Exit EV/EBITDA: 67.4x / 69.4x / 71.4x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $47.77 | 1.56x | yes | P/E 18x (static sector reference · 2026-04), scenarios: 14.9x / 18.0x / 21.1x (bear / base = reference held flat / bull), EV/EBITDA 26.4x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $38.78 | 1.92x | yes | BV/sh $3.19, ROE (TTM) 112.6%, ke 9.3% |
| Two-Stage Excess Return | Asset | $330.54 | 0.23x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $68.41 | 1.09x | yes | Rev $2.1B, growth 12% (input: historical growth; tapered), Terminal P/S: 2.1x / 2.5x / 3.0x (bear / base = today's held flat / bull, cap 8x) |
| Growth-Adjusted P/E | Relative | — | — | no | — |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | $65.79 | 1.13x | yes | BV $3.19 + 5yr PV of (ROE (TTM) 112.6% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $15.84 | 4.71x | yes | √(22.5 × EPS $3.50 × BVPS $3.19) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $6.20 | 12.03x | yes | EBITDA $0.09B × sector EV/EBITDA 12.0x |
| FCF Yield | Earnings | $49.71 | 1.50x | yes | FCF $386.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $44.32 | 1.68x | yes | SBC-adj FCF $0.35B (FCF $0.39B − SBC $0.04B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $2.93 | 25.45x | yes | EPS $3.50 × (8.5 + 2×-4.8%) × (4.4 / 5.3%) (excluded from median) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | $73.34 | 1.02x | yes | Revenue $2.12B × sector P/S 2.5x |
| PEG Fair Value | Relative | — | — | no | — |
| Earnings Yield | Earnings | $37.84 | 1.97x | yes | EPS $3.50 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $564.0m |
| Net debt / NOPAT (after-tax) | 1.81x |
| Net debt / operating income (pre-tax) | 1.46x |
| Interest coverage | 5.0x |
| Share count CAGR (buyback) | -3.3% |
| Burning cash | no |
Bullet Takeaways
- Frontdoor sells home-warranty plans, mostly under American Home Shield, that cover repairs to home systems and appliances, and the most recent quarter showed organic member count growing for the first time since 2020, up 3%.
- The biggest risk is the dependence on the housing market and renewals: the 10-K warns that "changes in the real estate market could also affect the demand for our services, and the 2-10 acquisition has temporarily pressured retention.
- Watch the member-growth inflection and the share buyback, with $60 million repurchased in the quarter against $603 million of cash, since management is using strong free cash flow to shrink the share count.
Bull Case
What the standard valuation models miss about Frontdoor is the nature of its revenue. A home-warranty plan is a subscription: the customer pays an annual fee, and most renew year after year. The asset-based and earnings-power methods that value the company on its book value or a snapshot of current earnings miss that the real asset is a renewing membership base worth far more than the modest equity on the balance sheet. Book value reads just over $3 per share, which makes the company look expensive on a price-to-book basis, but that number is irrelevant for a subscription business funded by customer prepayments. The right way to see Frontdoor is as a recurring-revenue compounder with a 55% gross margin, not as a capital-intensive enterprise to be valued off its balance sheet.
The membership trend turned, which is the most important development in years. Organic member count grew 3% in the first quarter, the first organic growth since 2020, breaking a multi-year decline. That matters because the entire economics rest on the size and retention of the member base. The company's moat is its contractor network: the 10-K explains that "increased usage of our independent preferred contractors leads to higher customer retention rates as well as lower costs, and that the network is drawn in because Frontdoor provides "access to our significant work volume. The more members, the more work for contractors, the better the service and the lower the cost, a flywheel that strengthens with scale.
The financial engine is throwing off cash and management is returning it aggressively. First-quarter revenue grew 6% to $451 million, net income rose 11% to $41 million, and free cash flow reached $114 million. The company repurchased $60 million of stock in the quarter and ended with $603 million of cash, and the share count has been shrinking at roughly 3% a year. A subscription business with returning members, a widening non-warranty offering through the HVAC upgrade program and the 2-10 integration, and a management team buying back stock with strong free cash flow is exactly the kind of compounder the growth-oriented valuation methods reward, which is why those methods land well above the current price.
Bear Case
Frame the bear around what the methods disagree on, because only one family of methods reaches the price, and the conservative ones are likely the more honest read. The asset-based methods, the earnings-power methods, and the peer-multiple methods all land below the current price; only the forward-growth method reaches it, by crediting continued double-digit growth. For a company whose core membership base only just returned to growth after four years of decline, leaning on the growth-extrapolating method is the riskier bet. The price requires Frontdoor to compound at a pace it has not sustained recently, and the methods that value it on what it has actually earned point lower.
The demand dependency is the structural concern. A large share of Frontdoor's customers come through the real estate channel, buying a warranty when they buy a home, and that channel rises and falls with the housing market. The 10-K is explicit: "changes in the real estate market could also affect the demand for our services if a reduced number of home buyers elect to purchase them. The direct-to-consumer channel is similarly exposed, with the filing noting demand can "fluctuate with "macroeconomic conditions, including interest rates and inflation, as well as consumer sentiment about the value of home warranties. In a high-rate environment that has frozen home turnover, a business tied to home resales faces a persistent headwind on new member acquisition, and a home warranty is exactly the kind of discretionary purchase a stretched consumer skips.
The 2-10 acquisition adds near-term noise and integration risk. The company has acknowledged that the acquisition caused a slight decrease in customer retention rates, with retention already around 79%, and expects the mix effect to normalize only by year-end. Retention is the single most important variable in a subscription model, and even a small, temporary dip compounds over time. Meanwhile, the company carries net debt of about $564 million, and the aggressive buyback that supports earnings per share is being funded alongside that debt and the acquisition. The extraordinary return on equity the model shows is a function of a tiny equity base shrunk by buybacks, not a sign of unusual underlying profitability. The structural truth is that Frontdoor is a decent subscription business priced for a growth reacceleration that depends on the housing market thawing and the acquired members staying, neither of which is assured.
Valuation
The price is a bet on durable compounding that the static methods cannot frame, and the gap between the methods is wide. At $71.53 (June 27, 2026), only the forward-growth method reaches the price. The relative-multiple methods, the asset-based methods, and the earnings-power methods all land below it. The book-value and capitalized-earnings reads are especially low because Frontdoor's equity base is thin, a consequence of years of buybacks rather than a weak business, so those methods understate a subscription model. The honest framing is that on what it has demonstrated, the stock looks fully valued, and the premium above the static methods is the market crediting the recurring membership base and the renewed growth.
What the price requires is modest on margin and dependent on growth. The current operating margin is about 18%, and the inversion shows the price needs only a far lower margin to be supported, so the market is not betting on margin expansion at all. The bet is on the member base growing, which only just turned positive. The growth method that reaches the price assumes that reacceleration continues, and that is the open question: whether the organic 3% member growth and the non-warranty expansion sustain, or whether the housing-market dependency and the 2-10 retention drag pull growth back toward the recent flat-to-declining trend. The peer cohort of recurring-service businesses like Rollins is the right comparison, and within it Frontdoor's valuation reflects the market pricing in a successful reacceleration.
Solvency is manageable and supports the capital-return story. Frontdoor carries net debt of about $564 million against trailing operating income that covers interest roughly 5 times, and it generates strong free cash flow, $114 million in the quarter alone, with $603 million of cash on hand. That funds both the buyback and the integration without strain. The decisive variable is not the balance sheet but the durability of the member-growth inflection: the reaffirmed full-year guidance of $2.155 billion to $2.195 billion in revenue and $565 million to $580 million in adjusted EBITDA is the roadmap the forward methods are pricing, and whether membership keeps growing is what determines if the price is fair.
Catalysts
Frontdoor reported first-quarter 2026 results in April, with revenue up 6% to $451 million, gross margin steady at 55%, net income up 11% to $41 million, and diluted earnings per share up 18% to $0.57. The standout was member growth: organic member count rose 3%, the first organic growth since 2020, and the company now expects roughly 1% total member growth for the year, breaking a multi-year contraction. Non-warranty revenue, including the HVAC upgrade program and the 2-10 integration, contributed meaningfully.
The 2-10 acquisition is the live integration story. Management noted it caused a slight decrease in customer retention rates during the quarter and expects that mix effect to normalize by year-end. How retention trends through the year is the metric most directly tied to the subscription model's value.
Management reaffirmed full-year 2026 guidance of $2.155 billion to $2.195 billion in revenue and adjusted EBITDA of $565 million to $580 million, an implied margin near 26%. On capital returns, the company repurchased $60 million of shares in the quarter and ended with $603 million of cash. The items to watch are the durability of the member-growth inflection, the normalization of retention after the acquisition, and the continued pace of buybacks funded by strong free cash flow.
Peer Cohorts (Per Segment, With Filing Citations)
Home Warranty (single operating segment) (reported)
- ROL (ROLLINS INC)
- (no filing in the citation store)
- APG (APi Group Corporation)
- (no filing in the citation store)
- ABM (ABM INDUSTRIES INCORPORATED)
- (no filing in the citation store)
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.
- 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.
Sources
Q1 2026 results, April 2026 · 2026 guidance, April 2026 · Q1 2026 results release, April 2026