SVX And Assist Products Will Expand Public Safety Capabilities

Key Takeaways

• Strategic acquisitions and product innovations enhance public safety technologies and software offerings, driving growth in revenue and recurring revenue streams.
  
• Demand for software applications and effective cost mitigation strategies support revenue, margins, earnings, and cash flow growth despite tariff challenges.
  
• Tariff costs and integration risks from acquisitions could challenge Motorola Solutions' earnings growth amid uncertain economic conditions and foreign currency headwinds.

Catalysts

Provides public safety and enterprise security solutions in the United States, the United Kingdom, Canada, and internationally.

• Strong growth in software applications and a focus on safety and security is expected to drive continued revenue increase for Motorola Solutions. Continued investments in video and software are achieving meaningful revenue growth. (Impacts: Revenue)
  
• The introduction of new products like the SVX and Assist, which significantly enhance public safety technologies, is likely to drive increased adoption of Motorola's higher-tier radios. This product innovation could expand revenue opportunities by integrating new technologies and providing additional software applications. (Impacts: Revenue and Earnings)
  
• The acquisitions of RapidDeploy and Theatro expand Motorola's software offerings, supporting revenue growth in the public safety and enterprise segments. These strategic acquisitions are expected to boost recurring revenue and drive demand for cloud and SaaS offerings. (Impacts: Revenue and Recurring Revenue Stream)
  
• Strong demand for software and services applications across the portfolio, including robust sales of the APX NEXT platform and increased adoption of cloud and SaaS offerings, are expected to contribute to sustained revenue and earnings growth. (Impacts: Revenue and Margins)
  
• The company is actively implementing mitigation actions like cost-saving measures and finding pricing opportunities to address up to $100 million in tariff-related cost increases, without affecting its expectation for strong earnings and cash flow growth. (Impacts: Earnings and Cash Flow)

Motorola Solutions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Motorola Solutions's revenue will grow by 5.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.7% today to 20.6% in 3 years time.
• Analysts expect earnings to reach $2.7 billion (and earnings per share of $16.37) by about May 2028, up from $2.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.0x on those 2028 earnings, up from 33.7x today. This future PE is greater than the current PE for the US Communications industry at 21.8x.
• Analysts expect the number of shares outstanding to grow 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 7.26%, as per the Simply Wall St company report.

Motorola Solutions Future Earnings Per Share Growth

Risks

• Higher costs related to tariffs, particularly from production in Malaysia and some Chinese component imports, are expected to impact earnings, with estimates up to $100 million this year, potentially affecting net margins.
  
• The ending backlog for Q1 was down both year-over-year and sequentially, possibly indicating a challenge in maintaining or growing future revenue streams.
  
• Foreign currency headwinds are expected to be $40 million for the year, which could negatively affect revenue from international operations.
  
• The reliance on acquisitions, such as RapidDeploy and Theatro, for revenue growth introduces integration and execution risks, which may impact earnings growth if not successfully managed.
  
• The volatility and uncertainty of the economic environment, including changes in tariffs and FX rates, could disrupt revenue and earnings forecasts if not accurately predicted and mitigated.

Valuation

• The analysts have a consensus price target of $493.888 for Motorola Solutions based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $13.0 billion, earnings will come to $2.7 billion, and it would be trading on a PE ratio of 38.0x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $412.64, the analyst price target of $493.89 is 16.5% 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.