Is Motorola Solutions Stock Fully Valued?
Despite a minimal rebound of 12% since the March 23 lows of this year, at the current price around $140 per share we believe Motorola Solutions Stock (NYSE: MSI) has reached its near term potential. Motorola Solutions’ stock has increased from $125 to $140 off the recent bottom compared to the S&P which moved 48% over the same time period. Lack of near term catalysts, as well as uncertainty surrounding the government spending for new projects, has led to the stock underperforming overall markets. Moreover, Motorola stock is up 60% from levels seen in early 2018, over two years ago. Although the stock remains well below the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic, it seems to be fully valued as of now, as, in reality, demand and revenues will likely be lower this year than last year. Our dashboard, ‘What Factors Drove 60% Change In Motorola’s Stock Between 2017 And Now?’ provides the key numbers behind our thinking, and we explain more below.
Some of the stock price rise of the last 2 years is justified by the roughly 24% growth seen in Motorola’s revenues from $6.4 billion in 2017 to $7.9 billion in 2019, the effect of which was partially mitigated by a 2.3% increase in shares outstanding. Taken together, this helped revenue per share surge by 21% from $39 in 2017 to $47 in 2019.
Finally, Motorola’s P/S (price-to-sales) multiple grew from 2.2x at the end of 2017 to 3.4x by the end of 2019. While the company’s P/S has now decreased to 2.9x, it seems to be appropriate, when the current P/S is compared to levels seen in the past years – P/S of 3.4x at the end of 2019 and 2.2x as late as 2017. We believe the stock is unlikely to see a significant upside after the recent rally and the potential weakness from a recession-driven by the Covid outbreak.
How Is Coronavirus Impacting Motorola’s Stock?
The global spread of coronavirus has affected industrial and economic activity across the world which is likely to adversely impact the company’s revenues across all operating segments, particularly product segments. The economic slowdown is likely to reduce expenses by companies across industries globally – considerably hurting the demand for the company’s offerings. Moreover, a delay in spending by the state and local governments in the near term is also likely to weigh on the company’s revenues. Additionally, the companies will postpone/suspend their spending in a bid to tackle the near-term shock to consumer spending. Nevertheless, the demand for Motorola’s services segment will remain upbeat as the services segment revenues are recurring in nature and the company has a strong backlog. The company remained immune from Covid-19 in its Q1 2020 (ending March), with the company’s revenues remaining flat but we expect the company’s revenues will take a hit in Q2 2020 as demand for its offerings will remain muted.
However, over the coming weeks, we expect improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus, which set a floor on fear, the market has been willing to “look through” the current weak period and take a longer-term view, with investors now mainly focusing their attention on 2021 results.
Want out-performance? Try guessing the % returns for our Pershing-inspired portfolio – based on billionaire Bill Ackman’s firm Pershing Square – vs. the S&P over the last 1 week, 1 month, 3 months, YTD or even 3 years. Our portfolio combines high growth, quality, and risk mitigation criteria in an interesting way.
See all Trefis Price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams