Demand For Public Safety Technologies Drives Motorola's Growth

Key Points

• Motorola Solutions' focus on public safety and enterprise security generated over $9 billion in revenue in 2022. The company sees that growing this year.
• Motorola stock has been rallying to new highs and outperforming the S&P 500 tech sector.
• The company has a long history of profitability with a three-year earnings growth rate of 9%.
• It's boosted its shareholder payout for the past 11 years and has a current dividend yield of 1.21%.
• Motorola reports its Q1 earnings on May 8, with Wall Street eyeing year-over-year increases. 

Motorola Solutions Inc. NYSE: MSI is one of those old-line tech names lacking the excitement factor of recent cloud computing or cybersecurity IPOs, but that shouldn’t stop investors from tuning into the maker of radio communications and wireless systems.

This company should not be confused with Motorola Mobility, a maker of mobile phones and tablets. That company is a completely different entity, which was acquired by Alphabet Inc. NASDAQ: GOOGL in 2012 and sold to Hong Kong-based Lenovo two years later. 

Motorola Solutions has transformed itself into a company with a focus on two main industries: Public safety and enterprise security. In 2022, revenue totaled $9.1 billion, up from $8.17 billion in 2021.

In February, when the company reported fourth-quarter results, it guided toward 2023 revenue in a range between $9.65 billion and  $9.7 billion. 

Outperforming Broad Tech Sector

The Motorola Solutions chart shows a stock that’s been rallying to new highs in the past five weeks, following a breakout from a flat base, with a buy point above $273.80. Motorola stock is up 5.89% in the past month and up 12.17% in the past three months, outperforming the S&P 500 tech sector, of which it is a component.

On a one-year basis, Motorola is up 32.69%, far outpacing the Technology Select Sector SPDR Fund NYSEARCA: XLK, which returned 5.56% over the past year. 

That price performance is far removed from the pie-in-the-sky hopium that you sometimes see with newer techs that haven’t yet proven themselves with profits. Motorola has a long history of profitability; its three-year earnings growth rate is 9%, while its three-year revenue growth rate is 5%. Neither is a bad number for a large, well-established company. The company also has strong earnings stability, due to its consistent profitability over the years.

Given all that, you might expect the Motorola Solutions dividend to be growing, and you’d be correct. The company has boosted its shareholder payout for the past 11 years. Its current dividend yield is 1.21%. The company also has a share buyback program, which increases the total yield.  

(Potential) Danger, Will Robinson

Before you get the idea that you should jump right into this stock based on its sound fundamentals and technicals, heed this warning: Motorola reports its first quarter on May 8, after the closing bell. Earnings reports frequently result in a stock moving sharply in one direction or the other, often as a result of guidance, or some unforeseen challenge mentioned in the report or the conference call. 

If a stock gaps up significantly after an earnings report, that can be a buy signal, as it generally means more gains will follow in the subsequent days, weeks or even months. On the flip side, it’s not generally a good idea to make a bet on a stock a week away from earnings, as you may get caught in a downdraft. 

Analysts expect Motorola to earn $1.80 a share on revenue of $2.13 billion. Both would be increases over the year-ago quarter. Motorola Solutions earnings data show the company beating top- and bottom-line views in the past four quarters. 

Taser Maker Is Rival

In the areas of public safety and security communications, a key rival is Axon Enterprise Inc. NASDAQ: AXON, a smaller but growing company that’s best known as the maker of Taser non-lethal weapons used by law enforcement. 

Motorola Solutions financials reveal a significant amount of debt on its balance sheet, due to a number of factors, including acquisitions of other companies, share repurchases, and investment in new technologies. 

Acquisitions have been a key strategy for Motorola Solutions to expand its product portfolio and enter new markets. n total, it’s invested $6 billion in new acquisitions since 2015. Many of these acquisitions were funded through debt.

In addition, Motorola Solutions used debt to repurchase a significant number of its own shares in recent years. Share buybacks using debt are a double-edged sword, as they return value to shareholders, while also increasing overall debt levels.

Investments In Cloud-Based & AI Tech

The company also invested heavily in new technologies, including AI and cloud-based solutions, which can require a sizeable upfront investment. While these investments are likely to generate long-term growth and profitability, they increase debt levels in the short term.

However, the debt level isn’t necessarily a gigantic red flag; Motorola generates significant cash flow from operations, and its market capitalization of $48.70 billion means it’s likely large enough to manage those debt levels. 

Motorola has a lot going for it, as an established company that has some growth-stock traits. Watch for the May 4 earnings report as a possible catalyst for a price move, and as an indication of whether the company’s growth is set to continue in the near term.