MSI Motorola Solutions Inc

Following the first quarter earnings announcement on April 25, none of the analysts covering Motorola Solutions Inc. (MSI) have made any revisions to their estimates. The brokers have retained their estimates based on the belief that the company will do well in the government segment but remain concerned about the increasing competitive scenario in the enterprise segment.

First Quarter Highlights

On a GAAP basis, quarterly net income was $159 million or 50 cents per share, compared with $367 million or $1.07 per share in the year-ago quarter. Adjusted EPS of 50 cents was well ahead of the Zacks Consensus Estimate of 47 cents.

Quarterly total revenue of $1,956 million was up 6.7% year over year, and marginally above the Zacks Consensus Estimate of $1,918 million. Operating margin was 11.9% compared with 9.2% in the prior-year quarter.

Agreement of Analysts

Of the 5 analysts covering the stock in the last 7 days, none have revised the estimates for the second quarter of 2012. Similarly, for the third quarter of 2012, none of the 5 analysts covering the stock have made any changes to their estimates.

For fiscal 2012, out of the 6 analysts covering the stock in the last 7 days, none have revised their estimates. The trend is similar for fiscal 2013 as well, where none of the 6 analysts covering the stock have revised their estimates.

Currently, the Zacks Consensus Estimate for the second quarter of fiscal 2012 is 62 cents, with a projected annual growth of 9.12%. For the third quarter of fiscal 2012, the Zacks Consensus Estimate of 69 cents indicates an annual gain of 23.93%.

Magnitude of Estimate Revisions

As a result of analysts’ reluctance to revise estimates either way over the past 7 days, the Zacks Consensus Estimates for the second and third quarter of 2012 has remained static at 62 and 69 cents per share, respectively. Similarly for fiscal 2012 and 2013, the current Zacks Consensus Estimates has remained unchanged over the past week at $2.77 and $3.32, respectively.         

Earnings Surprises

The company has outdone the Zacks Consensus estimates in all of the four previous quarters. In the first quarter of 2012, Motorola Solutions outpaced the estimate by 3 cents or 6.38%.

The estimates for the ongoing quarter of fiscal 2012 contain a downside risk of 1.61%, while the estimates for the third quarter of 2012 contain a downside risk of 1.45% (essentially a proxy for future earnings surprises). Fiscal 2012 estimates contain a downside risk of 1.44%, while the estimates for fiscal 2013 contain a downside risk of 5.42%.

Our Recommendation

We believe that Motorola Solution will benefit from the U.S. government’s initiative to build a nationwide super-fast public safety network. The company has inked a deal with Verizon Communication Inc (VZ) to install a public safety broadband network based on the Verizon’s nationwide LTE network, which will act as a positive catalyst for Motorola Solutions.

Moreover, Motorola Solutions caters to a large set of industries including Transportation & Logistics, Public safety, Hospitality, Retail, Oil & natural gas and more, which creates significant opportunities for the company.

However, the ongoing macroeconomic uncertainty may restrict government spending, which might act as a headwind for the company as Motorola derives a major part of its revenue from the government agencies. Furthermore, Sprint-Nextel Corp’s (S) decision to gradually phase out iDEN network will hamper its future prospects. Pending legal issues in several European countries act as an added concern for Motorola Solutions.

Considering these factors, we maintain our long-term Neutral recommendation on Motorola Solutions. Currently, Motorola Solutions has a Zacks #2 Rank, implying a short-term buy rating on the stock.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

 
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