Expansion Into AI-based Machine Vision And RFID To Strengthen Future Market Position

Key Takeaways

• Diversification into AI and strategic acquisitions may boost growth in new markets and enhance long-term earnings.
  
• Supply chain diversification and tariff mitigation strategies could positively impact future net margins.
  
• Geopolitical and economic uncertainties, FX headwinds, and tariffs threaten revenue stability, sales growth, and margin performance, with potential risks from manufacturing demand recovery delays.

Catalysts

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

• Zebra Technologies anticipates increased demand from retail mobile computing and RFID solutions, particularly in North America, indicating a potential rise in revenues due to the broader adoption of RFID in retail for supply chain and inventory management.
  
• The company is expanding its portfolio with AI-based machine vision solutions and strategic acquisitions, such as Photoneo, which can lead to growth in adjacent markets and improve future earnings.
  
• Zebra has diversified its supply chain to reduce reliance on China and plans to mitigate tariff impacts through supply chain initiatives and targeted pricing actions, which could positively affect future net margins.
  
• The company's commitment to innovation, including AI applications in its solutions, may enhance its competitive position and market share, leading to long-term revenue growth.
  
• Strong free cash flow and a low net debt to EBITDA ratio provide Zebra with flexibility for capital allocation, including share repurchases and strategic acquisitions, potentially enhancing earnings per share in the future.

Zebra Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zebra Technologies's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.6% today to 13.1% in 3 years time.
• Analysts expect earnings to reach $774.2 million (and earnings per share of $15.08) by about March 2028, up from $528.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $663 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.3x on those 2028 earnings, up from 27.5x today. This future PE is greater than the current PE for the US Electronic industry at 19.9x.
• Analysts expect the number of shares outstanding to decline by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.79%, as per the Simply Wall St company report.

Zebra Technologies Future Earnings Per Share Growth

Risks

• Geopolitical and macroeconomic uncertainties could impact customer spending and project visibility, affecting revenue stability and growth.
  
• FX headwinds from a strong U.S. dollar could result in lower reported sales growth and impact net margins.
  
• Anticipated tariff impacts, particularly from China and Mexico, could negatively impact gross profit by $20 million in 2025, affecting net margins and earnings.
  
• Lower visibility into customer spending beyond Q1 due to budget finalizations and project deployment uncertainties could pose risks to consistent revenue.
  
• Manufacturing sector lags in demand recovery, potentially impacting revenue growth in this segment and affecting overall sales performance.

Valuation

• The analysts have a consensus price target of $391.595 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 $326.0.
• 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 $774.2 million, and it would be trading on a PE ratio of 32.3x, assuming you use a discount rate of 7.8%.
• Given the current share price of $282.58, the analyst price target of $391.6 is 27.8% 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.