Analyst Note| William Kerwin |
Narrow-moat Zebra Technologies set quarterly records on the top and bottom lines in the first quarter and raised its guidance for fiscal 2021. We’re raising our fair value estimate to $385 per share from $325 as we think elevated demand will continue through 2021. Zebra is seeing a broad-based recovery from businesses disrupted by the COVID-19 pandemic in 2020, as every geography, end market, and segment served by the business grew by double-digit percentages year over year. Zebra also blew its EPS guidance out of the water, mainly due to strong gross margin expansion. Gross margins exceeded our expectations due to a favorable mix of small- and medium-sized businesses (SMBs), which are fulfilling pent-up demand after cautiously slowing capital expenditures in the face of uncertainty in 2020. We think Zebra can maintain these sales levels through 2021 as SMBs work through the rest of their pent-up demand and e-commerce and omnichannel demand continue their blistering pace. We now expect 2021 sales growth of 22% (at the top of management’s guidance range), and GAAP gross margin of 48%--a 300-basis-point expansion from 2020. Even at our new fair value estimate, we continue to view shares as substantially overvalued and would recommend waiting for a pullback.