Analyst Note| William Kerwin |
We are raising our fair value estimate for Zebra Technologies to $270 per share from $255 and maintaining our narrow moat rating. Zebra is a leading provider of automatic identification and data capture, or AIDC, technology, selling barcode printers, scanners, and mobile computers to improve supply chain and in-store efficiency at its customers. Our fair value estimate reflects our expectations for the firm’s foray into software to expand margins from historical highs, and for secular trends of digitization and automation to fuel top-line growth, with omnichannel retail and digital transformation in healthcare acting as tailwinds. Nevertheless, we think the market has gotten overly exuberant about Zebra’s software prospects, with 60% price appreciation since the end of September. We applaud the firm’s pivot into software, but at less than 10% of sales, it doesn't warrant current softwarelike multiples, in our view. We recommend waiting for a pullback.