A series of recent acquisitions continues to expand the firm’s reach across sectors including high-definition surveillance, video analysis as a service, AI software and more.
Its revenues have kept growing and it continues to raise its dividend payouts, with a strong balance sheet and favourable U.S. government legislation underpinning its plans. Add everything together and the firm is a top pick with plenty of room to keep expanding.
The stock trades at 23.2 times the company’s 2022 earnings forecast.
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MOTOROLA SOLUTIONS INC. (New York symbol MSI; www.motorolasolutions.com) recently paid $22 million for Videotec S.p.A. Based in Italy, that firm makes video security cameras that can withstand extreme weather conditions and hazardous environments.
Since 2015, Motorola has spent $4.5 billion on acquisitions. These were mainly smaller firms that let it enter new markets.
For example, in 2018, the company paid $974 million for Avigilon Corp. That firm designs, makes and sells high-definition surveillance systems. In 2019, it acquired VaaS International Holdings, Inc. for $445 million. VaaS, which stands for “video analysis as a service,” makes equipment and artificial intelligence software that scans licence plates and pinpoints the location of a vehicle.
Thanks to these new businesses, Motorola’s revenue rose 30.6%, from $6.04 billion in 2016 to $7.89 billion in 2019. However, revenue fell 6.0% to $7.41 billion in 2020 as clients delayed new purchases due to COVID-19 disruptions.
The company has now acquired TETRA Ireland Communications Limited for an undisclosed amount.
TETRA provides mobile radio communication (voice and data) services to first responders and front-line workers in Ireland. It already uses Motorola’s digital radio technology, which cuts the risk of this purchase.
This deal is part of Motorola’s strategy to operate critical communication systems on behalf of governments. Those predictable revenue streams offset its reliance on equipment sales for growth. In 2021, services and software accounted for 44% of its total revenue.
Motorola also acquired U.K.-based Calipsa, which develops artificial intelligence software to analyze security video feeds in real time. That helps reduce the number of false alarms. The company paid $40 million for this business.
Growth Stocks: Rising costs dent earnings but revenues continue rising
Using acquisitions to expand adds risk. However, these purchases enhance Motorola’s current communication products, such as radios for police and fire vehicles.
Earnings jumped 64.3%, from $851.0 million in 2016 to $1.40 billion in 2019; per-share earnings rose 61.8%, from $4.92 to $7.96, on more shares outstanding. Due to the lower revenue, earnings fell 4.2% to $1.39 billion ($7.69 a share) in 2020.
More recently, Motorola’s revenue in the quarter ended March 31, 2022, rose 6.7%, to $1.89 billion from $1.77 billion a year earlier. That topped the consensus forecast of $1.82 billion.
But due to rising costs for computer chips and other components, earnings in the quarter fell 9.1%, to $1.70 a share from $1.87. Even so, that beat the consensus estimate of $1.58.
Motorola now expects its revenue will rise 7% in 2022. As well, its earnings should improve to between $9.80 a share and $9.95 a share compared to $9.15 in 2021. The stock trades at a reasonable 23.2 times the midpoint of that range.
That’s an acceptable p/e as the company gets roughly 40% of its revenue from services and software. Those predictable revenue streams cut its reliance on equipment sales. The $3.16 dividend yields 1.4%.
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