Motorola Earnings: No Slowdown of Demand in Sight

We maintain our fair value estimate for Motorola Solutions MSI of $223 per share after an impressive second quarter that came in line with our revenue estimates and above our profitability expectations. Following results coming in ahead of management’s high end of guidance as well as record backlog in the quarter, the company raised its full-year guidance. Motorola continues to navigate foreign-exchange headwinds and macro uncertainty with ease, showcasing the mission-critical and sticky nature of its products that underpins its economic moat. Motorola is poised to perform well even against tough backdrops that hinder peers, and we expect the improving supply environment to drive continued upside.

While we are pleased with the firm’s performance and fundamentals, we continue to view the shares as overvalued. We think investors view Motorola as a more promising technology investment while other firms grapple with soft customer spending, driving the stock to high levels not supported by fundamentals. Shares rose around 3% to $296 after hours, which indicates to us that much of the firm’s upside is priced in already.

Second-quarter sales rose 12% year over year to $2.4 billion, driven by broad-based demand across end markets. The products and systems integration segment rose 12% year over year, with continued robust land mobile radio demand and improved supply chain ability. Strength in command center and video led to software and services growth of 13% year over year. We were most impressed with the firm’s backlog, up 6% year over year to $14.3 billion, reflecting healthy demand.

Non-GAAP operating margin of 26.7% was up 350 basis points from the year-ago period. The uplift in margins was bolstered by increased sales paired with higher pricing, lower material costs, and improved operating leverage.