Diversified Supply Chain And Photoneo Acquisition Will Strengthen Market Position

Key Takeaways

• Diversifying supply chains and strategic acquisitions position Zebra Technologies for resilience and future growth despite external economic pressures.
  
• Advancing digitization and automation efforts align with secular trends, supporting long-term revenue and profitability improvements.
  
• Macroeconomic uncertainty and dynamic trade policies could affect demand, impact sales growth, and challenge profitability amidst tariff-related pressures and competitive constraints.

Catalysts

Provides enterprise asset intelligence solutions in the automatic identification and data capture solutions industry worldwide.

• Zebra Technologies has diversified its supply chain beyond China, which allows the company to remain agile and potentially lessen the impact of tariffs on its revenue and earnings.
  
• The recent acquisition of Photoneo, a 3D machine vision company, is expected to contribute to Zebra's sales growth in 2025 by expanding its presence in manufacturing and logistics, which should boost revenue.
  
• Strong broad-based growth across all major product categories and regions indicates resilience and potential for increased market share, thereby driving future revenue growth.
  
• The company's focus on advancing workflows through digitization and automation aligns with secular trends, positioning it for long-term growth in revenues and profitability.
  
• Planned price increases in response to tariffs and favorable FX adjustments are expected to bolster gross margins and possibly enhance earnings in future quarters.

Zebra Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zebra Technologies's revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.7% today to 13.2% in 3 years time.
• Analysts expect earnings to reach $787.0 million (and earnings per share of $15.48) by about April 2028, up from $549.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $677 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.1x on those 2028 earnings, up from 23.9x today. This future PE is greater than the current PE for the US Electronic industry at 20.6x.
• Analysts expect the number of shares outstanding to decline by 0.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.75%, as per the Simply Wall St company report.

Zebra Technologies Future Earnings Per Share Growth

Risks

• The company faces macroeconomic uncertainty and dynamic global trade policies which could impact customer behavior and demand, potentially affecting sales growth and revenues.
  
• The impact of U.S. tariffs, despite mitigation efforts, is expected to be significant, with $70 million of gross profit impact for the full year, which could continue to weigh on net margins.
  
• The manufacturing sector, an important end market, is lagging in growth compared to other verticals, which may impact future revenue drivers in the industrial segment.
  
• Rapid changes in tariffs and global trade policies create uncertainty in the supply chain, potentially leading to increased costs and fluctuations in profitability.
  
• While pricing actions are being taken to offset tariffs, competitive pressure and customer pushback could limit the effectiveness of these actions, impacting net margins and earnings.

Valuation

• The analysts have a consensus price target of $328.345 for Zebra Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $433.0, and the most bearish reporting a price target of just $228.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.0 billion, earnings will come to $787.0 million, and it would be trading on a PE ratio of 26.1x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of $256.05, the analyst price target of $328.35 is 22.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.