Zebra Technologies Corp (ZBRA, Financial) recently reported a daily gain of 2.69% and an Earnings Per Share (EPS) (EPS) of $12.51. However, over the past three months, the stock has seen a slight decline of -1.2%. This raises the question: is Zebra Technologies modestly undervalued? In this article, we will delve into an in-depth valuation analysis of Zebra Technologies, providing valuable insights into its intrinsic value.
Company Overview
Zebra Technologies is a key player in the automatic identification and data capture technology industry. The company's solutions encompass barcode printers and scanners, mobile computers, and workflow optimization software. Predominantly serving the retail, transportation logistics, manufacturing, and healthcare markets, Zebra Technologies designs custom solutions to enhance efficiency for its customers. The company's current stock price stands at $262.29, while its estimated fair value (GF Value) is $369.55, suggesting that the stock could be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that offers a comprehensive view of a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor derived from the company's past performance and growth, and future business performance estimates. The GF Value Line provides a visual representation of the stock's ideal fair trading value.
According to the GF Value, Zebra Technologies' stock appears to be modestly undervalued. The GF Value Line indicates that if the stock price is significantly above the GF Value Line, the stock may be overvalued, leading to poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, potentially resulting in higher future returns. Given Zebra Technologies' current stock price of $262.29, it seems to be modestly undervalued.
As Zebra Technologies is relatively undervalued, the long-term return of its stock is likely to exceed its business growth rate.
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Financial Strength
Investing in companies with low financial strength could lead to permanent capital loss, making it crucial for investors to thoroughly review a company's financial strength before deciding to buy shares. A good initial perspective on the company's financial strength can be gained by looking at the cash-to-debt ratio and interest coverage. Zebra Technologies has a cash-to-debt ratio of 0.03, ranking lower than 98.49% of companies in the Hardware industry. Based on this, GuruFocus ranks Zebra Technologies' financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. A company with high profit margins is generally a safer investment than one with low profit margins. Zebra Technologies has been profitable 8 times over the past 10 years. In the past twelve months, the company reported a revenue of $5.50 billion and an EPS of $12.51. Its operating margin is 16.76%, ranking better than 88.8% of companies in the Hardware industry. Overall, GuruFocus ranks the profitability of Zebra Technologies at 8 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. GuruFocus research has found that growth is closely correlated with the long-term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Zebra Technologies is 10.2%, ranking better than 67.23% of companies in the Hardware industry. The 3-year average EBITDA growth rate is 11.2%, ranking better than 51.21% of companies in the Hardware industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Zebra Technologies' ROIC was 11.67 while its WACC was 12.62.
Conclusion
Overall, Zebra Technologies (ZBRA, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 51.21% of companies in the Hardware industry. To learn more about Zebra Technologies' stock, you can check out its 30-Year Financials here.
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