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Motorola (MSI) Tops Q3 Earnings Estimates, Raises FY17 View

Motorola Solutions Inc.’s MSI third-quarter 2017 earnings of $1.53 per share (excluding 28 cents from non-recurring items) surpassed the Zacks Consensus Estimate of $1.40. Also, the bottom line improved 11.7% from the year-ago figure. This improvement was owing to an increase in sales driven by the strong performance of its land and mobile radio operations.

Revenues increased 7.4% from the year-ago quarter to $1,645 million and also outpaced the Zacks Consensus Estimate of $1,580.2 million.

Markedly, the company is constantly looking to expand its operations. To this end, Motorola completed the acquisition of the privately held Kodiak Networks in August 2017, with the aim of broadening its software product portfolio. Operating margin (on an adjusted basis) in the third quarter of 2017 came in at 25.7% in the quarter compared with 25.8% in the year-ago quarter.

Operating Results

Product segment revenues came in at $989 million in the reported quarter, up 7.5% on a year-over-year basis. Service revenues totaled to $656 million, up 7.2% year over year. The upside was driven by strong performance in the Americas region.

Additionally, Motorola generated $270 million of cash from operations in the quarter, reflecting a substantial decrease from a year-ago. Free cash flow decreased 33.9% from the year-ago quarter to $185 million. Higher working capital requirement due to the implementation of a new ERP system contributed to the decline.

In fact, the company exited the third quarter with $717 million in total cash & cash equivalents compared with $1,030 million at the end of 2016. Long-term debt was $4,423 million in the end of the quarter compared with $4,392 million at the end of 2016.

Motorola Solutions, Inc. Price, Consensus and EPS Surprise

 

Motorola Solutions, Inc. Price, Consensus and EPS Surprise | Motorola Solutions, Inc. Quote

Dividend Hiked

Apart from announcing third-quarter results, the company raised its quarterly dividend by 11% to 52 cents a share (or $2.08 annually) from 47 cents (or $1.88 annually). The new dividend, which has been approved by the company’s board of directors, will be paid on Jan 12, 2017, to stockholders on record as of Dec 15.

We believe that the raised dividend highlights Motorola’s commitment to create value for shareholders and underscores the company’s strong financial condition and bright prospects in the near term. Moreover, a look at past records reveals the company’s stable dividend payment history.

Notably, this Schaumburg, IL-based company returned approximately $100 million to shareholders through buybacks and $76 million in dividends in the third quarter of 2017.

Outlook

Motorola anticipates revenues for the fourth quarter of 2017 to improve around 3% on a year-over-year basis. Adjusted earnings per share for the same period is projected between $2.00 and $2.05. The Zacks Consensus Estimate for 2017 is pegged at $2.04.

For 2017, Motorola now expects revenues to increase approximately 5% on a year-over-year basis (previous guidance had called for top-line growth in the band of 3% to 4%). Earnings (on an adjusted basis) are projected in the band of $5.35 to $5.40 per share (the earlier view had projected earnings in the range of $5.20 to $5.30 per share). The Zacks Consensus Estimate for 2017 is currently pegged at $5.27.

Zacks Rank & Stocks to Consider

Motorola carries a Zacks Rank #3 (Hold). Investors interested in the broader Computer & Technology sector may consider Comtech Telecommunications Corporation CMTL, Ubiquiti Networks UBNT and Harris Corporation HRS holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Comtech Telecommunications, Ubiquiti Networks and Harris Corporation have gained over 77.7%, 8.7% and 33.8%, respectively, year to date.

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