EUR 850.00 For Business Accounts Only

Morningstar | MSI Updated Forecasts and Estimates from 11 Feb 2019

Motorola Solutions’ fourth-quarter results were solid with both revenue and adjusted earnings exceeding previous guidance. The firm experienced solid growth in both systems and software and services. While guidance for the upcoming quarter and the year was positive, it does not materially shift our expectations for the firm’s prospects. We believe the firm remains on target to deliver on its target of $8 billion in revenue and $8 in adjusted earnings per share by 2020 but we are cautious of them sustaining the rate of growth over the long term. We will maintain our fair value estimate of $128 per share. At current prices, we see little upside and would encourage investors to wait for a wider margin of safety before investing in the narrow-moat public safety company.

Revenue in the fourth quarter was $2.25 billion, a year-over-year increase of 15% due to strong sales from both segments. Management noted that the long-standing government shutdown had minimal impact on sales as only 8% of total revenue are from federal program and that these programs are spread between a number of agencies. Product and systems integrations grew by 16% year over year to $1.67 billion in the fourth quarter. The firm won over $87 million in P25 contracts during the quarter. Management provided more details around the previously announced acquisition of license-plate recognition company VaaS which they expect to add an additional $100 million in sales for the year. Services and Software segment was also strong, growing 12% versus the year-ago period. Growth was strong across all regions with sales in North America, Australia, and the U.K. The firm also discussed the previously announced extension of its Airwave contract with the Home Office in the U.K. The deal, worth $1.1 billion is will continue throughout 2022 and management expected opportunities to add another $300 million in additional sales as a result of contracts with local governments.

Management’s guidance for the upcoming quarter assumes continuing growth, with revenues expected to total $1.6 billion, representing roughly 11% growth year over year and reflecting the impact of the Avigilon acquisition in 2018. For the full year, Motorola Solutions expects total revenue in the 6% to 7% range, just slightly ahead of our prior forecast, with a strong backlog in the pipeline and the addition of VaaS sales to the mix. Adjusted earnings per share during the upcoming quarter are expected in the range of $1.11 to $1.16 which represents roughly 4% year-over-year growth at the midpoint of guidance.