On Monday, Morgan Stanley (NYSE:MS) adjusted its stance on Zebra Technologies (NASDAQ:ZBRA), moving the stock's rating from Underweight to Equalweight and increasing the price target notably to $400 from the previous $305.
The revision comes as the stock trades near its 52-week high of $409, with 15 analysts recently revising their earnings expectations upward. InvestingPro data reveals the company has demonstrated impressive momentum, delivering a 68.7% return over the past year.
The firm's decision to upgrade the stock is based on the assessment that Zebra Technologies is now past the significant headwinds it previously faced. These included challenges related to the pacing of recovery following an e-commerce overbuild.
With these issues largely resolved, the analyst believes that there are no longer negative catalysts that could adversely affect the company's performance going forward.
The $21 billion market cap company has maintained a solid financial position, operating with a moderate debt level and achieving $4.66 billion in revenue over the last twelve months.
Morgan Stanley's analyst noted that recent improvements in retail and distribution capital expenditure tracking, along with more positive consumer survey data, have contributed to a more balanced near-term risk-reward outlook for Zebra Technologies. The removal of negative catalysts has been a key factor in the decision to upgrade the rating.
To adopt a more positive outlook on Zebra Technologies, Morgan Stanley indicated it would need to see the company achieving high single-digit growth rates. This would mean outperforming its long-term targets of 5-7%. Such growth would likely require significant developments in non-core segments like RFID or machine vision, which are not currently factored into the firm's base case.
Alongside the upgrade, Morgan Stanley has raised its price target for Zebra Technologies to $400, which represents an increase in the earnings multiple by approximately 2-3 times. This adjustment aligns the multiple closer to Zebra's five-year trading average, acknowledging the improving underlying trends.
Additionally, the firm has rolled forward its evaluation of the company's earnings power to fiscal year 2026. According to InvestingPro analysis, the stock currently trades at a P/E ratio of 54.8, suggesting a premium valuation relative to its Fair Value.
Investors seeking deeper insights into Zebra's valuation metrics and growth potential can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Zebra Technologies reported a substantial increase in Q3 sales and earnings, marking a significant year-on-year growth. The company announced Q3 sales of nearly $1.3 billion, a 31% increase, and non-GAAP diluted earnings per share of $3.49, a 300% rise from the previous year. This growth was driven by strong performances across all primary end markets, including mobile computing, data capture, and printing.
Zebra Technologies also raised its full-year outlook, expecting continued growth in sales and adjusted EBITDA margins. The company anticipates Q4 sales growth between 28% and 31%, and a full-year adjusted EBITDA margin of approximately 21%.
Despite some uncertainties, Zebra's strategic initiatives, like the acquisition of Matrox and the development of AI-enabled enterprise mobile computers, indicate a robust approach to navigating the market landscape.
However, the company expects a decline in Q4 gross margin due to an increase in larger deal volumes, and visibility for large projects in 2025 remains cautious due to macroeconomic factors. The manufacturing sector remains sluggish, and large order visibility for the upcoming year is limited. Despite these challenges, Zebra Technologies remains optimistic about the continuation of recovery into 2025.
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