Zebra Technologies: A Strong Contender for Investors?

Zebra Technologies Corporation (ZBRA) has experienced a remarkable surge of 42.7% year-to-date, surpassing both the industrial products sector's growth of 9.6% and the broader industry increase of 40.5%. This impressive performance also places Zebra ahead of competitors like John Bean Technologies Corporation (JBT) and Honeywell International Inc. (HON), which recorded returns of 28.1% and 8.3% respectively during the same period.

Zebra's Market Performance

Closing at $390.65 in the most recent trading session, Zebra’s stock remains below its 52-week high of $413.44, but is notably above its 52-week low of $233.95.

As a leader in enterprise asset intelligence solutions, Zebra Technologies is benefiting from strong conditions in the automatic identification and data capture solutions market. The company has successfully diversified its product offerings, expanding beyond its traditional markets in manufacturing, retail, transportation, and logistics. This strategic move has enabled Zebra to enhance its presence in other sectors such as public service, healthcare, and e-commerce.

Key Factors Supporting Zebra's Growth

Zebra Technologies is currently enjoying strong growth in its Enterprise Visibility & Mobility segment. The increasing demand for its mobile computing and data capture solutions, coupled with rising customer investments in technology, is positively impacting the segment's performance. Sales in services and software have also been boosted by key wins in the retail software segment, resulting in a significant 33.7% year-over-year revenue increase in the third quarter of 2024.

Additionally, a rebound in demand for printing solutions and radio frequency identification devices is enhancing the performance of Zebra's Asset Intelligence & Tracking segment, which saw a revenue rise of 26.5% year-over-year.

In response to evolving market conditions, Zebra has been enhancing its digital capabilities, optimizing supply chain processes, and expanding its data analytics creative functions to engage customers more effectively. The company anticipates an increase in fourth-quarter 2024 net sales between 28-31% compared to the previous year due to these initiatives.

Zebra's commitment to cost management has also yielded positive results, reducing its operating expenses by 3.9% in the third quarter. The company has successfully implemented actions from its 2022 productivity plan and voluntary retirement program, affecting over 9% of its global workforce and generating estimated annual net cost savings of around $120 million.

To further support its growth, Zebra has achieved $110 million in net savings till September 2024, indicating effective cost management strategies.

In addition to these growth initiatives, Zebra is dedicated to rewarding its shareholders through dividends and stock buybacks. In the first nine months of 2024, the company repurchased shares worth $16 million, compared to $52 million during the same period in 2023. At the end of the third quarter, Zebra had $877 million remaining in its share repurchase program. While the company reported negative free cash flow in 2023, it predicts free cash flow of at least $850 million for 2024, supporting its shareholder-friendly practices.

The Zacks Consensus Estimate for Zebra's revenues for 2024 and 2025 stands at $5 billion and $5.3 billion, reflecting year-over-year growths of 8.1% and 5.9% respectively.

Comparative Returns and Valuation

Zebra's trailing 12-month return on equity (ROE) stands at 18%, exceeding the industry average of 14.3%. This figure indicates Zebra's effective use of shareholders' equity. Moreover, the return on assets is 7.83%, also higher than the industry’s 6.56%, demonstrating the company's efficiency in generating returns from its asset base.

With a forward price-to-earnings ratio of 24.52X, Zebra's stock is relatively attractive compared to the industry average of 25.68X. Furthermore, it is priced lower than its competitor Cognex Corporation (CGNX), which is considered overvalued by industry standards.

Earnings Outlook

Recent earnings estimates for Zebra have seen an uptick, with projections for 2024 rising by 10.6% to $14.04 per share over the last 60 days. Estimates for 2025 have also risen by 5.3% to $15.97 per share, reflecting anticipated year-over-year growths of 43% and 13.7% for 2024 and 2025 respectively.

Investment Consideration

With strong momentum across various sectors, a robust product portfolio, and a focus on data analytics and cost-saving measures, Zebra Technologies is well-positioned for substantial growth in the coming quarters.

Given its attractive valuation relative to industry peers and strong earnings projections, ZBRA is a compelling option for investors looking to diversify their portfolios. The company currently holds a Zacks Rank #1 (Strong Buy), indicating the confidence in its continued growth prospects.

Zebra, Stock, Investment