The networking industry thrives with increased demand for connectivity and digital solutions. Ongoing trends like enterprise mobility and hybrid/remote work present significant growth opportunities.
However, not all stocks in this space are well-positioned to benefit from the industry trends. BlackBerry Limited (BB) is one such stock from the networking industry that I think is best avoided now. However, Motorola Solutions, Inc. (MSI) could be a smart addition to one’s watchlist.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the tech industry.
In 2024, the industry might face uncertainty influenced by factors like interest rates, regulatory policies, and overall growth prospects. However, a potential cut in interest rates could create a financially favorable environment, fostering large-scale acquisitions and deals and presenting opportunities for strategic growth and collaboration within the media and technology sector.
Predictions indicate a positive outlook for the telecom sector, emphasizing growth prospects and key trends. The industry is expected to sell over 220 million smartphones with satellite connectivity capabilities in 2024, reflecting a focus on connecting the unconnected. The global communication market is expected to reach $1.60 trillion by 2028, growing at a 2% CAGR.
Furthermore, the swift integration of 5G is set to increase the demand for networking technology, while security issues related to cloud applications and hybrid work setups will contribute to the growing requirements for network security. The 5G market is projected to grow at a 56.2% CAGR to reach $990.33 billion by 2028.
Considering these trends, let’s examine the fundamentals of the two stocks from the Technology - Communication/Networking industry, starting with the one ranked lower from the investment point of view.
Stock #2: BlackBerry Limited (BB)
Headquartered in Waterloo, Canada, BB provides intelligent security software and services to enterprises and governments worldwide. The company operates through three segments: Cybersecurity; IoT; and Licensing and other.
In terms of the trailing-12-month Capex/Sales, BB’s 0.84% is 64.4% lower than the 2.37% industry average. Likewise, the stock’s 0.46x trailing-12-month asset turnover ratio is 25.2% lower than the industry average of 0.62x.
For the fiscal third quarter that ended November 30, 2023, BB’s revenue came in at $175 million. The company’s adjusted net income and adjusted income per share came in at $3 million and $0.01, respectively, compared to an adjusted net loss and adjusted loss per share of $30 million and $0.05.
For the quarter ending February 28, 2024, BB’s EPS is expected to remain negative. Likewise, its revenue for the quarter ending May 31, 2024, is expected to decrease 58.3% year-over-year to $155.57 million. Over the past six months, the stock has declined 38% to close the last trading session at $3.43.
BB’s bleak prospects are reflected in its POWR Ratings. The stock has an overall D rating, which translates to a Sell in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a D grade for Stability, Sentiment, and Quality. It is ranked #38 out of 46 stocks in the Technology - Communication/Networking industry. To access BB’s grades for Growth, Value, and Momentum, click here.
Stock #1: Motorola Solutions, Inc. (MSI)
MSI provides public safety and enterprise security solutions in the United States, the United Kingdom, Canada, and internationally. The company operates in two segments: Products and Systems Integration and Software and Services.
On December 18, 2023, MSI announced the acquisition of IPVideo, the maker of the HALO Smart Sensor, a versatile device for real-time health and safety threats featuring vape detection, air quality monitoring, gunshot detection, and more. This reinforces MSI’s commitment to enhancing safety and security with cost-effective, privacy-conscious sensor solutions.
Mahesh Saptharishi, Executive VP and Chief Technology Officer at MSI, 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. We see this as an opportunity to introduce additional detection solutions that help our customers protect people, property and places.”
On December 15, 2023, MSI announced a partnership with the NSW Telco Authority to introduce WAVE PTX Government with Critical Connect. This advanced broadband push-to-talk service enhances communication for New South Wales Emergency Services Organizations, providing interoperable voice, data, and video capabilities.
MSI’s Managing Director (Australia and New Zealand), Con Balaskas, said, “WAVE PTX Government and Critical Connect streamline and simplify their ability to communicate, regardless of whether they use radios, smartphones or other devices that combine both technologies. This gives first responders more ways to share critical information and enables faster, more effective responses to incidents.”
In terms of the trailing-12-month gross profit margin, MSI’s 49.54% is 0.8% higher than the 49.14% industry average. Likewise, its 24.74% EBIT margin is 402.4% higher than the 4.92% industry average. Also, the stock’s 0.82x trailing-12-month asset turnover ratio is 32.3% higher than the industry average of 0.62x.
MSI’s revenue for the third quarter ended September 30, 2023, increased 7.7% year-over-year to $2.56 billion. The company’s non-GAAP operating earnings increased 9.6% year-over-year to $741 million. Also, its non-GAAP EPS came in at $3.19, representing an increase of 6.3% year-over-year.
Street expects MSI’s EPS and revenue for the quarter ending December 31, 2023, to increase 0.8% and 4.1% year-over-year to $3.63 and $2.82 billion, respectively. It surpassed the consensus EPS estimates in all of the trailing four quarters. Over the past month, the stock has declined 4.2% to close the last trading session at $311.64.
MSI’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.
It has a C grade for Growth and Stability. Within the same industry, it is ranked #12. To see MSI’s Value, Momentum, Sentiment, and Quality ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
MSI shares were unchanged in premarket trading Wednesday. Year-to-date, MSI has declined -0.46%, versus a -0.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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