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Scanning for Growth: Unpacking Zebra Technologies

Ticker: ZBRA
Sector: Technology
Industry: Communication Equipment
Headquartered: Illinois, USA
Moat: Narrow: Switching Costs, Scale

Action at date of this post

Hold as of : 03.26.2024
This is a solid company that if you have it you hold it. If you are still building your position, look for solid entry points. This opinion is either a result of stretched valuation or there might be a question about the company.

Fair Value Analysis

I do a fair value analysis on every stock in two ways. The first is the Discounted Cash Flow (DCF) method which I use for most stocks. I also run the Peter Lynch Fair Value method on stocks as well. I like running both as there are times where one way is more meaningful than the other depending on the stock.

Because of the pandemic blip, straight valuations of the company make it appear sorely overvalued. When applying more normalized estimates based on the company’s historical performance, it appears that the company is fairly valued.

Zerba Corporate Overview

Zebra Technologies Corporation is a global leader in enterprise-level data capture and automatic identification solutions. Founded in 1969, Zebra specializes in providing hardware, software, and services to enable organizations to gain real-time visibility into their operations. The company’s product portfolio includes barcode scanners, mobile computers, RFID (radio-frequency identification) technology, printers, and software solutions tailored for various industries such as retail, manufacturing, transportation and logistics, healthcare, and government sectors.

Zebra’s innovative technologies empower businesses to enhance efficiency, improve accuracy, and streamline workflows, ultimately driving productivity and profitability. With a strong focus on innovation, Zebra continually invests in research and development to deliver cutting-edge solutions that address evolving customer needs and market trends.Headquartered in Lincolnshire, Illinois, Zebra operates in over 100 countries, serving a diverse customer base ranging from small businesses to large enterprises. The company’s commitment to quality, reliability, and customer satisfaction has established it as a trusted partner for businesses seeking to optimize their operations through advanced data capture and identification technologies.

Zebra Segment Analysis

Zebra operations reports in two segments – Asset Intelligence & Tracking (“AIT”), which includes barcode and card printing, RFID and RTLS offerings, supplies, and services; and Enterprise Visibility & Mobility (“EVM”), which includes mobile computing, data capture, fixed industrial scanning and machine vision, services and workflow optimization solutions.

Zebra Moat Source

Zebra’s narrow moat is still growing as it entrenches itself deep into the workflows of its customers. The company’s moat is due to the extreme switching costs that its customers would face should they replace or switch away from their products and services. As well, the size of the company, depth of product and R&D spend will make it difficult for an upstart to supplant it. 

Zebra Growth Outlook

Like many companies, Zebra experienced a blip with the pandemic. The share price surged as the company experienced a significant order bump. As the company’s order flow and inventory levels returned to normal it’s share price and numbers have suffered a readjustment. 2023 was a rough year for the company but, it looks like the worst is past. 

Zebra is a crucial partner with its customers’ supply chain, logistics and operational efficiency. According to industry analysts, Zebra holds a ~40% share of the Automatic Identification and Data Capture (AIDC) market. This put’s it far ahead of the next largest competitor, Honeywell. Besides the hardware the company creates, it has taken a deep dive into software to vertically integrate it’s systems inside the customers ecosystem. I think this is a smart move as it puts Zebra deeper into customer businesses and software (and associated services) are much higher margin than equipment sales. 

With the largest AIDC portfolio in the world, Zebra is the only company that offers solutions in the five main categories of barcode printing, handheld scanners, stationary scanners, RFID, and mobile computers. Again, this puts the company in the position to create deep relationships and adds to its moat. It’s important to keep in mind that each customer’s set of solutions are custom built and unique to that company = high switching costs. If a customer wants to replace Zebra it will likely need to coordinate more than one vendor.

I see the company’s robust offerings, full platform, vertical integration and now software layer as huge growth potential as the world moves toward connectedness.

The Numbers

While the numbers are not awesome, they are moving in the right direction and I’m forgiving of the pandemic experience. The company has still kept ROIC alive and well. Revenue seems to be back on the pre pandemic trajectory and the balance sheet is solid. If I’m being totally honest, I like seeing CAPEX not missing a beat. Reinvesting in its product development will help keep it ahead of any competition. 

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

At the time of writing this post, the author does have a position in ZBRA.

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