AI And Machine Learning Investments Will Expand Addressable Markets

Key Takeaways

• Strategic investments in AI and machine learning aim to expand markets and drive long-term revenue growth.
  
• Restructuring and supply chain improvements enhance margins and manage costs, supporting profitability.
  
• Limited visibility on large deployments and reliance on specific regions could challenge revenue with macroeconomic and competitive pressures impacting margins.

Catalysts

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

• Zebra Technologies is seeing early signs of demand recovery across key end markets, including mobile computing, data capture, and printing, which could drive future sales growth. This is expected to positively impact revenue.
  
• The company's restructuring actions, including the consolidation of North American distribution centers, are projected to deliver $120 million of net annualized operating savings, improving net margins.
  
• Strong cash flow generation and reduced net debt-to-adjusted EBITDA leverage ratio provide Zebra with increased flexibility for share repurchases and potential acquisitions, supporting future earnings growth.
  
• Strategic investments in innovation, including advancements in machine learning and AI-enabled solutions, could expand Zebra's addressable markets and drive long-term revenue growth.
  
• The company's focus on improving supply chain resiliency and mitigating potential tariff impacts positions it well to manage costs and maintain profitability, supporting improved net margins.

Zebra Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zebra Technologies's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.2% today to 13.3% in 3 years time.
• Analysts expect earnings to reach $784.7 million (and earnings per share of $15.32) by about January 2028, up from $382.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $659 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.8x on those 2028 earnings, down from 54.8x today. This future PE is greater than the current PE for the US Electronic industry at 25.5x.
• Analysts expect the number of shares outstanding to decline by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.32%, as per the Simply Wall St company report.

Zebra Technologies Future Earnings Per Share Growth

Risks

• Limited visibility regarding the timing of large deployments, especially in the manufacturing sector, could impact future revenue and earnings as large projects are key growth drivers.
  
• Ongoing macroeconomic uncertainties, including interest rate fluctuations and geopolitical risks, may lead to cautious consumer spending and delayed customer investments, potentially affecting revenue growth.
  
• Increased competition and the need for continual innovation could pressure margins and require sustained investment in research and development, impacting net margins.
  
• High reliance on specific regions for growth, especially EMEA and Latin America, which experienced easier year-on-year comparisons, may pose a risk if these markets do not sustain their current growth trajectory, potentially affecting future revenue.
  
• Potential supply chain disruptions or new tariffs, particularly if production remains heavily tied to China, could increase costs and impact gross margins.

Valuation

• The analysts have a consensus price target of $420.6 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 $468.0, and the most bearish reporting a price target of just $365.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.9 billion, earnings will come to $784.7 million, and it would be trading on a PE ratio of 33.8x, assuming you use a discount rate of 7.3%.
• Given the current share price of $405.59, the analyst's price target of $420.6 is 3.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.