Zebra Technologies (ZBRA.O) takes its name from the black and white stripes on the ubiquitous barcodes that track products and inventory, collect data and scan prices. Zebra makes marking, tracking and printing technologies such as thermal barcode label and receipt printers, card and kiosk printers. StarMine models indicate it may be printing out better earnings.
Zebra recently acquired Motorola Solutions’ Enterprise division for $3.45 billion in cash in an effort to expand its footprint in mobile computing and advanced data capture communications technologies and services. With a large positive StarMine Predicted Surprise of 7.3%, it looks like Zebra may exceed analysts’ earnings estimates.
Source: Eikon/StarMine
Outrunning the consensus
As you can see in the chart above, the StarMine SmartEstimate of $1.25 per share is currently 9 cents per share above the I/B/E/S consensus. One of the 5-star analysts covering the company has an estimate that is 43 cents above the consensus, stating that the Motorola acquisition is a big win for the company. In fact, in the past 90 days, one analyst with a hold recommendation upgraded the stock to a buy. Earnings estimates are up for the next year, too, by 5% in the last 90 days, indicating the confidence is not limited to just this quarter.
Source: Eikon/StarMine
Affordable purchase
While the $3.5 billion acquisition may seem a large price tag, one of the justifications could be the strong cash flows from operations that Zebra generates. In each of the last 12 quarters, the company reported cash flow from operations that exceeded net income, a sign of strong earnings quality. With no pre-existing debt on its balance sheet, it looks like the company could easily afford an acquisition of this scale.
Source: Eikon/StarMine
Operating strength
And the company seems to be performing strongly by most operating metrics. Return on net operating assets is reaching five year highs, and most recently, trailing 4Q RNOA was 42% — far above the industry median of 17.7%, which was driven by improving operating profit margins, also at a 5-year high of 19.7%.
Improving efficiency and strong cash flows tell us that earnings are coming from sustainable sources. Look for Zebra Technologies to beat estimates this quarter and continue to demonstrate strong results in the coming quarters.
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