Motorola Earnings: Another Terrific Period of Robust Demand Brings Valuation up to $230 From $223

We raise our fair value estimate for shares of narrow-moat Motorola Solutions MSI to $230, from $223, after another quarter where results and guidance beat our expectations. Simply put, Motorola is seeing tremendous demand for public safety technology and is uniquely positioned to capitalize on this demand with its comprehensive portfolio. We see Motorola as competitively strong, with mission-critical, sticky products that underpin its economic moat. Still, we continue to find valuation challenging and see shares as overvalued.

Third-quarter sales rose 8% year over year and 6% sequentially to $2.56 billion, well above management’s guidance. Motorola saw year-over-year growth for every technology, across land mobile radio, video, and command center software. Its pivot into software, particularly for video and command center applications, is generating higher growth and profitability for the firm.

Profitability impressed us this quarter, with non-GAAP operating margin reaching 29%, up 50 basis points year over year and a healthy level, in our opinion. We think device refreshes, along with a larger mix of software, are driving margins durably higher.

Fourth-quarter guidance calls for 4% growth on the top line, and management raised its full-year sales guide for the third quarter in a row. 2023 sales are now expected to grow 9% (compared with 8.5% previously) to a midpoint of around $9.94 billion. Motorola has been growing sales by close to 10% since 2021, which is particularly impressive given its backlog has risen during the same time—indicating true enduring demand to us. We still anticipate growth to slow to the midsingle digits in the long term (management’s preliminary guidance is about 6% growth in 2024), but we see this continuing to reflect strong performance. We also expect the non-GAAP operating margin to expand toward 30% over the next five years.