EUR 850.00 For Business Accounts Only

Morningstar | Narrow-Moat Zebra Leads the Herd in Data Capture; Launching With $215 FVE. See Updated Analyst Note from 23 Apr 2019

Zebra Technologies is a leader in the automatic identification and data capture marke and we believe the firm is well-placed to benefit from the proliferation of the "Internet of Things" and increasing data demands from a variety of end markets, including retail and logistics. The firm’s portfolio of products, including RFID readers, barcode scanners, and printers, as well as the requisite software platforms, come with high customer switching costs, in our view, supporting a narrow-moat rating. We are initiating coverage of Zebra Technologies with a $215 fair value estimate, which implies a 2019 adjusted price/earnings multiple of 17.4 times. We believe shares are slightly rich at the moment and we would advise interested investors to wait for a wider margin of safety before purchasing this high-uncertainty name.

Customers rely on Zebra’s products to enable asset identification, data capture, and tracking and we believe demand for these capabilities is increasing. While the firm and its competitors will benefit from these trends across several end markets (including transportation, manufacturing, retail, and healthcare), we think Zebra’s future returns are more than a secular growth story. The firm’s products and services are deeply embedded in workflows and processes of its key markets and we believe the associated customer switching costs will support returns above the cost of capital for the next decade.

We expect revenue growth from both of Zebra’s segments, the firm’s legacy asset intelligence and tracking; and enterprise visibility and mobility, which the firm picked up through its 2014 acquisition of Motorola Solutions’ enterprise unit. We also think that the ongoing transition from Windows OS to Android products is a near-term catalyst for growth while the increasing demands for asset location, tracking services, and analytics in newer markets, like healthcare, will support long-term revenue increases.

While healthcare is likely to experience the fastest growth, we believe there are a number of use cases supporting demand for the firm’s products in the areas of retail, logistics, and manufacturing. We believe Zebra will realize solid mid-single digit revenue growth over our explicit forecast period along with incremental margin expansion due to an improving mix and ongoing cost controls. In general, we believe Zebra has a robust portfolio, dominant share, and a track record of delivering leading products capable of supporting the ongoing connectivity demands for the major end markets it serves.