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Investors looking for a top robotics stock to load up on in September certainly have plenty of options to choose from. Robotics is a space that's seeing impressive growth. Whether we're talking about automatic warehouses or logistics services, surgical procedures, or a myriad of other industries ripe for disruption, there's plenty of long-term upside potential for investors in this realm.
I have a number of robotics stocks on my watch list right now, for this reason. I think capital investments in automating mundane tasks that are difficult to hire for (given the relatively low wages many of these jobs pay) could lead to outsized productivity gains over the long-term. One of the companies that certainly provides such potential for productivity gains I think is worth considering right now is Zebra Technologies ( NASDAQ:ZBRA ). The company specializes in Enterprise Asset Intelligence (EAI) and Automatic Identification and Data Capture (AIDC). With an $17 billion market cap , the company provides what it calls "Asset Intelligence & Tracking and Enterprise Visibility & Mobility," offering mobile computing, barcode printing, and workflow automation solutions.
This stock has underperformed the market average of late, with a one-year return of 19% and a five-year return of 65%. Those numbers aren't terrible, but there are plenty of other robotics companies that are up much more over these time frames.
Here's why I think ZBRA stock is one that looks like it's on sale, at least on a relative basis, right now.
Key Points About This Article:
- Robotics and workforce automation companies are seeing increased interest from investors, as companies in various sectors of the economy look for ways to boost productivity.
- Here's why Zebra Technologies looks like a compelling top pick in this sector given its valuation relative to its long-term growth prospects.
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Analysts Are Bullish on ZBRA Stock
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Demand for RFID chips and other asset tracking devices remains strong, and is a key driver of Zebra's recent strong Q2 results. The company posted impressive 26% earnings per share growth, allowing Zebra's management team to raise its full-year guidance, and propelling investors to buy ZBRA stock following the print. The earnings beat was a surprise of around 13%, and has provided another catalyst for the stock which has been on a nice up trend since bottoming out last October.
Following the company's recent earnings report, analysts from Needham and Stephens & Co. both substantially raised their price targets on ZBRA stock, while maintained their ratings on the company. These price target hikes appear to be directly influenced by the company's demand profile and projected guidance, with six analysts now holding a "strong buy" or equivalent rating on the robotics company.
Among the key reasons why analysts are bullish on Zebra Technologies is the company's expanded support contracts, improved cost management, and the potential for additional strategic acquisitions down the road. As Zebra continues to experience strong growth in key sectors, enhanced digital capabilities should provide significant growth opportunities as the company looks to grow its market share and better connect with its customers.
Diving Into the Fundamentals
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Zebra Technologies' Q2 earnings were strong, with the company handily beating consensus EPS estimates of $2.82 (reporting $3.18 of EPS), with revenues up slightly on a year-over-year basis to $1.22 billion. As far as top and bottom line growth are concerned, Zebra didn't really hit the ball out of the park, but compared to expectations, it was a strong quarter.
The company's Enterprise Visibility & Mobility segment drove these better-than-expected results, with revenue growing 8.6% year-over-year to $820 million. Zebra's Asset Intelligence & Tracking segment offset this strong performance, declining 13.5% year-over-year on the revenue side of the ledger. Expectations are that this will improve as RFID products volumes grow (according to the company's guidance), but we'll have to see how the company's upcoming quarterly results reflect this sentiment.
These results highlight that Zebra's core business segment continues to see strong growth, and if its other business lines improve, I do think future quarters could provide even greater earnings outperformance and future upgrades.
As of the end of Q2, Zebra Technologies held $411 million in cash , up from $137 million in December 2023. This strong cash position partially offsets the company's long-term debt, which rose to $2.08 billion from $2.05 billion. The company generated $413 million in net cash from operations in the first half of 2024, compared to a $110 million outflow last year. Capital expenditures came in at $24 million, and free cash flow reached $389 million, reversing a $144 million outflow from the previous year.
A Robotics Stock Worth Considering
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For Q3 , Zebra Technologies projects a 25-28% increase in net sales, a growth rate I think more than justifies the stock's current multiple of 21-times forward earnings. Indeed, for a stock growing at this rate, a PEG ratio of less than 1 suggests the market is pricing in a significant margin of safety into this stock. For investors looking to put fresh capital to work today, this is a stock that certainly looks attractive on this basis.
With EBITDA margins expected to come in around 20% and free cash flow expected to exceed $700 million next year, this is a stock with an effective future free cash flow yield of 4.1% that's growing its cash flow at an impressive clip. If the company can maintain its capital expenditures in the $60-$70 million range, this is a stock that could be poised to appreciate significantly from here, as its core business continues to provide steady growth.
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