Motorola Solutions, Inc. (MSI) in Schaumburg, Ill., provides mission-critical communications and analytics worldwide. The company operates in two segments: products and systems integration and services; and software. On December 16, MSI announced the acquisition of 911 Datamaster, Inc., a next-generation 9-1-1 (NG9-1-1) data solutions provider. The acquisition is expected to enhance MSI’s organizational workflows and reinforce its commitment to being a leader in command center solutions. MSI shares have gained 50.3% over the past year and 50.5% year-to-date to close its last trading session at $255.90. The stock is trading above its 50-day and 200-day moving average. The median price target of $285.88 indicates a potential 11.7% upside of 11.7% from its last closing price.

“With 911 Datamaster’s technology, we continue to enhance our integrated command center software suite that is trusted by agencies across North America to manage their operations with greater efficiency, accuracy, and safety,” said Mahesh Saptharishi, executive vice president and chief technology officer, Motorola Solutions. The stock hit its 52-week high of $266.86 on the same day. In November, the company acquired Envysion, Inc., a leading provider of enterprise video security and business analytics solutions for the quick-service restaurant and retail industries.

MSI posted double-digit revenue and earnings growth in its last reported quarter, despite struggling with several supply chain issues and cost pressures over the quarter. Furthermore, demand for its products and services has been robust, and the company ended the quarter with a solid backlog position. MSI reported a record $11.4 billion backlog, up 7%, from the prior-year quarter, primarily driven by a 24% rise in products and systems Integration segment backlog. The growth was mainly due to strong LMR demand, and the company expects demand for its products to outpace its supply for the remainder of 2021.

Here is what could shape MSI’s performance in the near term:

Profitable

MSI’s 22.88% and 15.46% respective EBIT  and net income margins are 150% and 141.5% higher than the 9.15% and 6.40% industry averages Furthermore, MSI’s 11.00% and 21.03% respective ROA and ROTC are 204% and 326.6% higher than the industry averages.

Solid Third-Quarter Earnings Report

MSI’s net sales increased 12.8% year-over-year to $2.11 billion in its fiscal third quarter, ended October 2. Its operating earnings came in at $451 million, indicating a28.1% increase from the same period last year. Its net income attributable to the company grew 49.8% from the year-ago value to $307 million. And the company’s non-GAAP EPS increased 21% year-over-year to $2.35. Its non-GAAP operating margin was 26.3% of sales, compared to its 24.8% year-ago value. The increase can be attributed to higher sales, higher gross margin, and improved operating leverage in both segments.

Attractive Capital Return Structure

The company repurchased $137 million of shares and paid $120 million in cash dividends during the third quarter. In November, it  increased its regular quarterly dividend by 11% to 79 cents per share. The dividend is payable on January 14, 2022. MSI’s $3.16 annual dividend yields 1.2% at the current share price. Its dividend payouts have increased at an 11.1% CAGR over the past three years and 11.4% CAGR over the past five years. And the company has a record of 10 consecutive years of dividend growth.

POWR Ratings Reflect Growth Prospects

MSI has an overall B rating, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a B grade for Sentiment. This is justified because analysts expect the company’s EPS to increase 14.1% per annum over the next five years.

MSI has a B grade for Quality, which is in sync with its higher-than-industry profit margins.

Of the 54 stocks in the Technology – Communication/Networking industry, MSI is ranked #13.

Beyond what I have stated above, one can  also view MSI’s grades for Value, Growth, Momentum, and Stability here.

View the top-rated stocks in the Technology – Communication/Networking industry here.

Bottom Line

MSI reported impressive third-quarter earnings performance, owing to robust demand for its products and services. Furthermore, the company raised its full-year guidance. MSI now expects revenue growth of 10% -10.25%, up from the prior guidance of 9.5% – 10%, while the company expects its non-GAAP EPS to be in the range of $9.00 – $9.04, versus the previous guidance of $8.88 – $8.98. In addition, MSI has a stable dividend growth history. So, we think it could be wise to bet on the stock now.

How Motorola Solutions, Inc. (MSI) Does Stack Up Against its Peers?

MSI has an overall POWR Rating of B. However, one could also check out these other stocks within the Technology – Communication/Networking industry with an A (Strong Buy) rating: Photronics, Inc. (PLAB) and Extreme Networks, Inc. (EXTR).

MSI shares were trading at $256.63 per share on Tuesday morning, up $0.73 (+0.29%). Year-to-date, MSI has gained 52.92%, versus a 23.45% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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