Frontdoor, Inc. (FTDR) stock intrinsic value fair value estimate & owner earnings analysis

Frontdoor sells home warranty plans (American Home Shield, Choice Home Warranty, HomeServe-style service contracts through its own brands and, since December 19, 2024, the 2-10 Home Buyers Warranty new-home builder warranties). Customers pay an annual fee; Frontdoor dispatches a network of about 4,200 preferred contractors to fix covered appliances and systems. Renewals are the core: about 75 percent of plans renewed in 2025 and overall retention was 79 percent. How we measure earnings. We start from cash generated by operations, remove one-off swings in working capital (for example a $25 million tax timing benefit in 2025), deduct stock compensation as a real cost ($34 million in 2025), and deduct only the capital spending needed to keep the business running ($22 million of $26 million spent in 2025). Interest on about $1.2 billion of term loans is already paid out of the cash flow used, so debt is not deducted again. On that basis, per-share earnings were roughly $1.5 to $2.0 in 2016-2021, dipped to $1.05 in 2022 when service costs rose and pricing lagged, then rose to $2.09 in 2023, $3.09 in 2024 and $4.45 in 2025. The last two years reflect repricing of the plans, cost control, a shrinking share count (80.9 million to 74.5 million diluted shares) and, in 2025, the first full year of 2-10 (about $188 million of revenue). Acquired customer relationships are amortized at about $53 million a year; that is a non-cash charge we do not subtract, but it tells us the acquired customer base wears down, so we let it shape the growth path rather than the earnings level. What the shares appear worth. Our earnings level is $3.60 per share: above the three-year median of $3.09, which contains only 12 days of 2-10, but below the single 2025 result of $4.45, because one year including a tax-timing benefit is not enough to reset the base. Revenue growth was 14 percent in 2025, but $188 million of the $250 million increase was the acquisition; the underlying gain was about 3 percent, all from pricing, while the number of home warranties fell 3 percent because of the weak housing market. We therefore give no growth credit for volume or margin gains. Base case, about $51 per share: earnings hold at $3.60 for ten years (pricing keeps pace with shrinking plan counts), then decline about 2 percent a year as the customer base slowly erodes. Bear case, about $20: cost inflation on parts and labor, which cut earnings to $1.05 in 2022, returns; earnings restart at $2.30 and fall 5 percent a year as plan counts keep shrinking and the acquired 2-10 customers churn, with debt maturing in 2029 (Term Loan A) and 2031 (Term Loan B) leaving little cushion. Bull case, about $79: the 2025 level of $4.45 holds and grows 2 percent a year for ten years, in line with recent price realization, then declines about 1 percent a year. We left out growth from housing recovery, new products, market share gains and the pace of future share buybacks, since none is secured or a proven repeatable process. What would make this wrong. The 2025 profit step-up depended on price increases; if customers push back and retention drops below the current 79 percent, the base case is too high. Conversely, the 2-10 acquisition could contribute more than we have credited once a full year of cash flow is visible. Home warranty count decline of 3 percent in 2025 is the clearest evidence against the base case. The margin-of-safety price of $28 reflects a leveraged, cost-sensitive business whose earnings history includes a fall of about 50 percent in a single year (2022). Note: the 2026 quarterly results were not available in a form we could use, so this analysis rests on full-year 2025 and earlier filings.