About Zebra Technologies
Over the last handful of years, it’s been “supply chain this” and “supply chain that” littered all over the business news networks as well as through other media outlets.
And rightfully so, as COVID-19 and other catalysts lead to local, national and global supply chains being stretched and stressed to, in some cases, excess.
For some context for those who aren’t as familiar with the term “supply chain,” it is essentially the process of getting a good or product from being assembled to landing in your hands, ready to be used for whichever purpose it is meant to serve.
A rather simple example might help.
One of the menu items McDonald’s sells the most is its famed Chicken McNuggets.
However, it might not (and really doesn’t, frankly) make a whole lot of sense for McDonald’s to put together its nuggets itself, therefore it needs some sort of supplier of nuggets that it can rely on to safely and efficiently (both in terms of time and money) make, pack, ship and deliver said nuggets to each of the company’s restaurants, which is evidently many as the company maintains somewhere in the neighborhood of 40,000 locations worldwide.
Let’s just say (we don’t know with certainty if this is the case, so please take this as a hypothetical) that one of the company’s largest suppliers of chicken nuggets is none other than the world’s largest, most established chicken company, headquartered in Springdale, Arkansas, Tyson Foods.
This makes Tyson Foods a de facto link in McDonald’s relatively complex supply chain, and we’re just simply talking about a single element of the restaurant’s menu, mind you.
However, the complexity continues to unfold as Tyson has to first source and produce its chicken, which, of course, involves a supply chain in and of itself before it can even think about supplying a customer such as McDonald’s.
Don’t try this at home, kids.
From hatching, sorting, killing (sorry, but it is nevertheless a part of this particular process and chain), cleaning, shipping, delivering, receiving and eating, this is a process with, evidently, a lot of moving parts that all must interact with one another harmoniously just to simply ensure that your neighborhood McDonald’s has chicken nuggets ready for you and its other customers.
This is where Lincolnshire, Illinois-headquartered Zebra Technologies comes into play.
Specifically, Zebra is one of the leaders in providing tools and technologies meant to optimize the overall operations (yes, including their supply chain operations) for businesses of all shapes and sizes (and industries such as retail, manufacturing, healthcare, hospitality, transportation and distribution and banking, among a handful of other spaces) through its various product offerings such as (but definitely not limited to) scanners used at grocery checkout stations, labeling machines, loss and asset protection equipment as well as tracking tools used in a manufacturing and/or distribution setting, hence all the jibber jabber regarding the supply chain.
While we assume this company has its slight undulations in terms of annual revenues, it is a well established company with many, many products and offerings and it is also helps to have customers such as Walmart, Amazon, CVS, Target, Dollar General, Office Depot, Fanatics and so many others that can more than likely continue paying for Zebra’s products and services, regardless of how bad the state of the economy becomes.
Through its hardware and software capabilities and solutions, Zebra has done a fine job in establishing its presence and, really, dominance in the aforementioned spaces, however, let’s get a bit more focused on determining whether or not this mission critical supplier’s stock (NASDAQ: ZBRA) is worth considering buying and holding onto for the foreseeable future.
Zebra’s stock financials
With a current share price of just a hair under $300 (as of July 28th, 2023), a market capitalization of $15.4 billion (which is essentially just how much the company is worth at the time of this publication) along with a price-to-earnings (P/E) ratio of 38.07 and no annually issued dividend offered to its shareholders at the moment, Zebra’s stock (NASDAQ: ZBRA) seems a bit more on the expensive side, trading at over eighteen points more than the commonly held, standard value price-to-earnings benchmark of 20, which is most certainly something to keep in mind as we progress throughout this stock analysis, as it appears as though someone ought to be ready to pay a premium (i.e., overpay) for an ownership stake in this company right now if they were intent on catching a ride on the Zebra Technologies Express.
It can also be found that this company doesn’t pay out an annual dividend, which isn’t all that shocking given that it would probably be a much better use of its capital and cash flows to continuously reinvest in the software and hardware that practically account for all of the business it generates today.
With respect to the condition of the company’s balance sheet, Zebra’s executive team is in charge of approximately $7.5 billion in terms of total assets along with around $4.8 billion in terms of total liabilities, which, for a rather tenured company such as this one (incorporated in 1969) is a fine balance sheet, in a definitively more positive than negative sense given that its total assets outweigh the aggregate amount of its outstanding liabilities by a comforting margin, but there seems to also be some debt financing in the works which is a positive as it will help this company continue growing, that is, if its executives continue acting as responsible stewards and financial agents for the company and its shareholders.
All in all, no complaints whatsoever regarding the overall state of this company’s balance sheet.
Moving to Zebra’s income statement, the company’s total annual revenues since 2018 have shown strong signs of economic resilience, which we frankly think will continue given that when businesses are stressed and looking for ways in which they can optimize and better streamline their operations, Zebra is one of the top players that can do just that for said organizations.
Of course, no single company is entirely recession proof, however, we would be fine adding Zebra Technologies to a list of recession resistant companies all day, any day.
More specifically when it comes to the company’s recent year-over-year (YOY) revenue figures, Zebra’s total annual revenues have stayed at just about $4 billion each year between 2018 and 2020, jumping up to a new level of around $5 billion in 2021 and 2022, which we don’t see receding anytime soon given the organic demand this company has and will more than likely continue to see moving forward.
At any rate, while this is impressive and an unequivocal positive for Zebra and its prospective shareholders, its revenues aren’t growing fast enough (from our vantage point, at least) to justify paying a sizable premium for this company’s shares (NASDAQ: ZBRA) and with that, we would certainly want to still see Zebra’s valuation drift down to more favorable levels despite its rock solid revenues.
Onto the company’s cash flow statement, Zebra’s net income and total cash from operations have been just about as consistent and positive as we had initially anticipated, for example, with its net income (measuring since 2018) maintaining a low of $421 million (2018) and a high of $837 million (2021) as well as its total cash from operations ranging from $488 million (2022) and just north of $1 billion in 2021.
Sure, this company has experienced some fluctuations in these respects, however, we are happy to find that it is far from common for this company to experience any sort of negative net income or total cash from operations figures, even with the economy’s recent, greater overall undulations.
Zebra’s stock fundamentals
Being that this company is one of the top dogs in the business enterprise software and hardware space(s), we think it is more than reasonable to expect that it has a highly competitive trailing twelve month (TTM) net profit margin with respect to its peers, on average.
According to the figures displayed on TD Ameritrade’s platform, it appears as though we shouldn’t have been concerned at all, as Zebra’s TTM net profit margin is listed at 7.09% to the industry’s respective average of -10.99%, indicating with a great leadership position also comes great TTM net profitability, which was expected but we are happy to verify that Zebra Technologies is completing this mission in flying colors.
With respect to the company’s TTM returns on both assets and investment(s), Zebra’s are nearly identical to those of the industry’s listed averages, which isn’t really good nor bad, it just implies that the space(s) in which the company operates are fairly competitive on these fronts and we are fine knowing that Zebra has stayed competitive in these categories.
Should you buy Zebra Technologies stock?
Candidly, this company’s current valuation in relation to what it is actually worth paying for is a sticking point for us, preventing us from giving this company’s stock (NASDAQ: ZBRA) a “buy” rating and instead having to give it a “hold” rating.
While there are certainly areas of this company’s business in which it is growing, partially justifying paying a slight premium for an ownership stake in the company is one thing but its shares simply aren’t trading at a slight premium, but a considerable one, around twenty points greater than that of the price-to-earnings fair value benchmark.
It just isn’t growing its revenues fast enough to warrant overpaying this much for its shares, however, if one happened to already own shares of the company’s stock (NASDAQ: ZBRA), we don’t think it would necessarily be a bad idea to continue holding said shares at this moment in time.
All things considered, this company has a solid balance sheet, consistent-to-growing YOY revenues, is cash flow generative and competitive with respect to its peers in other respects such as its TTM net profit margin and its TTM returns on assets and investments.
Putting all of this information together, you know where we stand on this company and its stock (NASDAQ: ZBRA) at the moment.
Where do you stand?
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.