Zebra Technologies: A Reversal Is In Play

Key Points

• Zebra Technologies moves up after strong results and cautious guidance. 
• The company is expanding the adjusted margin and growing through acquisition. 
• The most significant risk is the increase in debt posted in Q4. 

Zebra Technologies NASDAQ: ZBRA chart has all the hallmarks of a reversal about to be confirmed. The chart shows a clear bottom with a Head & Shoulders pattern that has already broken above the 150-day EMA. This action is backed up by the indicators consistent with the reversal and shows a technical buy signal.

A look at the recent results will tell you why. The company beat on the top and the bottom line and gave guidance that, while on the weak side, affirmed the market’s confidence in the business and growth trajectory. Zebra Technologies is a specialist in on and off-sight data capture, remote work tools and productivity and is in high demand from businesses and industry. Anytime you see someone with a work-specific digital device there’s a good chance it came from Zebra. 

Zebra Moves Higher On Cautious Guidance 

Zebra Technologies had a decent quarter in which revenue grew by 2.5%. This is slightly ahead of the analysts' expectations and was driven by a 3.9% increase in organic sales. The internal results were mixed, but the AIT and EVM segments contributed to performance. The EVM segment contracted by a slim 0.2% which offset the 13.5% gain in AIT. The best news of the quarterly results is that adjusted margins are expanding.

The GAAP margin contracted due to acquisitions, but adjusted EBITDA grew 6% to produce a 22.5% margin. This left the Q4 EPS at $4.75 to outpace revenue growth but more than 200 basis points. The most significant contributor to the margin gain is the increase in business coupled with lower operating expenses. 

Turning to the guidance, the guidance is underwhelming but comes with a caveat. The company is taking a cautious approach, according to CEO Anders Gustafsson, so an easy bar for the company to hurdle. The real trouble is that FY EPS targets are below consensus, but it doesn’t seem to be bothering the market. 

“Our team delivered strong fourth-quarter results to close a challenging year. We are recovering from supply chain challenges and achieved sales and earnings performance at the high end of our outlook, driven by double-digit growth in the Americas,” said Anders Gustafsson, Chief Executive Officer of Zebra Technologies. “Although our order backlog and pipeline of opportunities remain healthy, we are taking a cautious approach to our outlook in this uncertain macro environment.”

The Technical Outlook: ZBRA Wants To Run 

The most significant risk with Zebra Technologies is on the balance sheet but the market doesn’t seem t mind. The company has a strong balance sheet, but cash levels are low, and debt has doubled since the recent acquisitions. This situation will likely correct itself over the coming quarters, cash flow is strong, but it could become a burden if economic conditions worsen.

Until then, the charts indicate a bottom and potential for reversal that is about to be tested. The market is up more than 2.5% following the report and on the way to testing resistance at the $360 level. If the market can get above this level, a more robust recovery in the stock price should be expected.

If not, this stock may remain range bound at current levels, a risk seen on charts across the S&P 500. Given this situation, it is not likely we’ll see a broad market rally soon without some positive change in the outlook. In this light, Zebra Technologies' reversal is probably one from down to sideways and not down to up, not just yet.