Kessler examines future of Monitronics

Good news for Ascent Capital, the parent holding company of Monitronics, according to a recent research report conducted by Imperial Capital's Jeff Kessler. The takeaway is that the monitoring company's Q1 2014 earnings—$484 million in revenue, EBITDA of $321 million—were consistent with estimates and the company is “not experiencing impact from the entrance of cable/telcos."

As a result, Imperial Capital is maintaining the outperform rating and one-year price target of $94, about 43 percent above the company's recent share prices, recorded in the report at $65.80.

The share price is being impacted currently by skittishness surrounding the big new market entrants, referred to as a “false negative perception about the competition from cable/telcos.”

“We believe that Ascent remains fundamentally strong and is not seeing any slowdown as a result of cable/telcos entering the security space,"  the report says.

As far as the new competitive landscape, Kessler believes traditional security companies remain Monitronics' primary competitors. He also envisions something of a schism taking place between traditional large security companies and the newcomers who established themselves first in other industries.

The former, according to the report, will continue to command their share of business in the market for critical life safety systems, while the latter will bring to market more of a “home services,” lifestyle-focused package. The report said that existing skepticism about the “commitment to service” of the cable/telcos could hinder their ability to gain share from the largest security providers.

Kessler's report was extremely thorough, full of many fascinating prognostications about not just Monitronics but the industry at large. Needless to say, a lone blog post can hardly do it justice. Here's a sample sentence from the report that certainly piqued my interest:

“We believe smaller, undercapitalized security companies who do not have the capital to install Alarm.com or iControl wireless interactive systems may face real competitive threats.”

The report also touched on the implications of the enormous advertising budgets of the new market entrants, as well as the positive effects of Monitronics' acquisition last August of Security Networks.