Motorola Solutions, Inc. (MSI) is scheduled to report fourth-quarter and full-year results on February 8. Wall Street expects MSI’s revenue and EPS for the quarter to increase year-over-year. In this piece, I have discussed why it could be wise to wait for a better entry point in the stock despite the expected rise in its revenue and earnings.

For the fourth quarter, MSI’s EPS and revenue are expected to increase 0.9% and 4.1% year-over-year to $3.63 and $2.82 billion, respectively. The company has a solid earnings history, having beaten the consensus estimate in each of the trailing four quarters.

Post its third quarter results, MSI’s Chairman and CEO Greg Brown said, “Q3 was another strong quarter, with record third-quarter revenue, earnings and cash flow. Safety and security have never been more important, and we continue to see robust demand, which drove our record Q3 backlog. As a result, we’re again raising our revenue and earnings expectations for the full year.”

MSI’s revenues in the fourth quarter are expected to be boosted by higher growth in the Products and Systems Integration and Services and Software segments. The company ended the third quarter with a record backlog of $14.30 billion, which is 6% or $764 million higher than the prior-year quarter.

Its Products and Systems Integration segment’s backlog was up $62 million or 1%, driven by solid demand in North America. Similarly, the Software and Services segment backlog was up $702 million or 8%, driven by increases in multi-year software and services contracts in North America, partially offset by revenue recognition for the Airwave contract.

For the fourth quarter, the company forecasted revenue growth of approximately 4% over the prior-year quarter. Its non-GAAP EPS is expected to come between $3.60 and $3.65. For the full year 2023, its revenue is expected to now come between $9.930 billion and $9.945 billion, up from the previous guidance of $9.875 billion and $9.900 billion.

The company also revised its fiscal 2023 guidance for non-GAAP EPS from between $11.40 and $11.48 to between $11.65 and $11.70. On December 18, 2023, MSI announced the acquisition of IPVideo, the creator of the HALO Smart Sensor. The acquisition reinforces MSI’s commitment to improving safety and security by offering a cost-effective sensor that is easy to deploy and operate for enterprises of all sizes.

MSI’s executive VP and CTO Mahesh Saptharishi said, “With its powerful sensor capabilities, HALO extends our end-to-end physical security offering by integrating a non-video threat detection product into our safety and security ecosystem.”

Also, during the fourth quarter, MSI unveiled the LTE-enabled V500 body camera, the latest addition to its mobile video portfolio that provides vital real-time field intelligence to emergency response. In addition, its board of directors announced an increase in its regular quarterly dividend by 11% to 98 cents per share, payable on January 12, 2024. The board also approved an increase of $2 billion to its existing share repurchase program.

Other developments during the quarter include the Essex County Fire and Rescue Service choosing MSI’s command center technology, including Control Room Solution (CRS), for its call handling and emergency dispatch capabilities. Also, Japan’s Narita International Airport expanded the reach and capacity of its mission-critical TETRA communications network with MSI’s broadband push-to-talk communication service, WAVE PTX.

The company also notified that Arizona had selected Rave Alert to enable emergency notification and reverse 9-1-1 alerting in its 81 public safety answering points.

MSI’s stock has gained 16.7% over the past six months and 26% over the past year to close the last trading session at $325.38.

Here’s what you might want to consider ahead of its upcoming earnings release:

Robust Financials

MSI’s net sales for the fiscal third quarter ended September 30, 2023, increased 7.7% year-over-year to $2.56 billion. Its net cash provided by operating activities rose 84% over the prior-year quarter to $714 million. The company’s free cash flow increased 104.1% year-over-year to $649 million.

Its non-GAAP net earnings attributable to MSI increased 6.4% year-over-year to $547 million. Also, its non-GAAP EPS stood at $3.19, representing an increase of 6.3% year-over-year.

Favorable Analyst Estimates

Analysts expect MSI’s EPS and revenue for fiscal 2023 to increase 13.1% and 9.2% year-over-year to $11.72 and $9.95 billion, respectively. Its fiscal 2024 EPS and revenue are expected to increase 8.2% and 5.7% year-over-year to $12.68 and $10.51 billion, respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, MSI’s 27.76x is 10.9% higher than the 25.05x industry average. Its 2.98x forward non-GAAP PEG is 45.5% higher than the 2.05x industry average. Likewise, its 21.63x forward EV/EBIT is 6.6% higher than the 20.30x industry average.

High Profitability

In terms of the trailing-12-month EBITDA margin, MSI’s 28.60% is 219.3% higher than the 8.96% industry average. Likewise, its 16.65x trailing-12-month levered FCF margin is 98.2% higher than the industry average of 8.40x. Also, its 24.74x trailing-12-month EBIT margin is 427.9% higher than the industry average of 4.69x.

POWR Ratings Reflect Uncertainty

MSI has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MSI has a D grade for Value, consistent with its stretched valuation. It has a B grade for Quality, in sync with its high profitability.

MSI’s stock is trading below its 10-day moving average of $326.44 and above its 200-day moving average of $295.04, justifying its C grade for Momentum. Also, it has a C grade for Stability, consistent with its 0.93 beta.

MSI is ranked #13 out of 46 stocks in the Technology – Communication/Networking industry. Click here to access MSI’s Growth, Stability, and Sentiment ratings.

Bottom Line

MSI expects to end fiscal 2023 on a solid note as it has raised its revenue and earnings estimate for the entire year. The company is seeing strong demand for its mission-critical technologies. It is currently witnessing strong demand for land mobile radio (LMR), video security, and access control hardware.

Despite the solid developments, MSI trades at an expensive valuation. Moreover, given its mixed stability and momentum, it could be wise to wait for a better entry point in the stock.

How Does Motorola Solutions, Inc. (MSI) Stack Up Against Its Peers?

MSI has an overall POWR Rating of C, equating to a Neutral rating. You may check out these A and B-rated stocks within the Technology – Communication/Networking industry: Gilat Satellite Networks Ltd. (GILT), Ceragon Networks Ltd. (CRNT), and Eutelsat Group (ETCMY). For exploring more Buy-rated Technology – Communication/Networking stocks, click here.

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MSI shares were unchanged in premarket trading Wednesday. Year-to-date, MSI has gained 3.93%, versus a 4.24% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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