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Motorola – Picture Looking Perfect

motorola solutions

motorola solutions

Update - May 1, 2023 -It's been a few months since our last update on Motorola, but we're happy to report that the company's Q4 2022 results were impressive. Sales reached $2.7 billion, up 17% from Q4 2021, and the backlog was $14.3 billion, up 6% from the same period. The operating cash flow was also healthy at $1.3 billion. We attribute these positive numbers to the company's strong presence in the public safety and enterprise security solutions markets.

Perhaps most exciting for investors, the stock is now trading at $291, up almost 14% in just a few months. Given the market's volatility, these results are nothing short of picture perfect. Looking at the Q4 software awards, we get a sense of the end markets that Motorola is excelling in. The company won a $56 million international radio award, a $25 million domestic award, a $22 million next-generation 911 award for an existing customer, and a $15 million license plate recognition award for a public safety agency. In addition, the company received hundreds of millions of dollars in new hardware orders, further demonstrating the strength of their product line.

We were also pleased to see that Motorola is projecting 12.5% revenue growth in Q1 2023, despite growing economic headwinds. For the year, revenue is expected to reach at least $9.65 billion, a 6% growth rate from last year's $9.11 billion.

While there are still a few open business and legal disputes, the market appears to be discounting them, including an investigation into Motorola's Mobile Radio Network business. This overhang could create some volatility in the stock at some point, but we believe that Motorola remains an attractive software and technology play for a long-term diverse portfolio given its public safety end-markets. Overall, we maintain our positive outlook on investing in Motorola stock.

Note: This update is a follow-up to our previous article published on December 25, 2022, which highlighted Motorola's impressive Q3 results and their strong positioning in the public safety and enterprise security markets

Prior Update - December 25, 2022 - When we first wrote about Motorola, its stock was trading at $270 and we said it was not cheap but that it was an attractive stock for long-term investors. Our thesis remains intact with the stock at $256.

As we enter 2023, we believe Motorola Solutions (NYSE: MSI) is positioned to benefit from increased crime waves that are impacting large cities across America. Although the stock is a bit pricey in this market, backlog, profits and cash flow support the valuation. You get what you pay for.

Our thesis on Motorola is relatively simple. The actual (or perceived) increase in crime rates has both Democrats and Republicans looking for quick political solutions. In addition to increased funding for additional cops, new technologies are increasingly being deployed. Motorola is a vendor of choice as it offers a wide range of public safety solutions such as hand-held radios, body cameras and license plate reading equipment. Motorola has a strong brand presence with police agencies across the US and similar overseas agencies.

Based on our research, we believe that the education market is an under-appreciated vertical market and Motorola is poised to be successful in this arena. Given national initiatives and political concerns around safe schools, access controls and related analytics, there is funding available to buy Motorola solutions through the American Rescue Plan as well as the Bipartisan Safe Cities Act, which directly addresses access, egress, ingress issues at schools.

Motorola continue to perform on a long-term basis, it remains attractive, and you get a dividend yield of 1.30% while riding out any market volatility. With a record $13.5 billion in backlog, Motorola has strength heading into any potential recession.

Inflation is impacting all customers; however, we believe Motorola is relatively immune and has been successful with actually raising prices. After all, once a city installs body cameras, it is very difficult for politicians to say no. Training and switching costs make it painful. Another big advantage for Motorola is that it is based in America. Police agencies are being encouraged to no longer buy from less expensive Chinese suppliers. As older equipment needs to be replaced with HD & 4K cameras, Motorola should benefit.

All-in-all, a great story and we believe the stock is appropriate for investors looking for growth with a little dividend income and who have a 2 year to 3-year time horizon for holding.


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