Motorola Earnings: Overpriced Shares Overshadow Strong Fundamentals After Impressive Results

We’ve raised our fair value estimate for Motorola Solutions MSI to $223 per share from $216 after an impressive first quarter that came in ahead of our estimates. The company also raised its full-year guidance. Motorola continues to navigate a rocky macroeconomic spending environment with ease, showcasing the mission-critical and sticky nature of its products that underpins its economic moat. Sales and earnings beat the top ends of management guidance, and gross margin was particularly impressive. Motorola is positioned to perform well even against tough backdrops that hamper peers, and we wouldn’t be surprised if the newly raised full-year guidance turns out to be modestly conservative.

We are impressed by the firm’s performance and fundamentals but continue to view the shares as out of reach. We think investors have flocked into Motorola as a safe-haven technology investment while other firms grapple with soft customer spending, driving the stock to high levels not supported by fundamentals. The shares were flat around $290 after a very strong quarter, which indicates to us that much of the firm’s upside is priced in already.

First-quarter sales rose 15% year over year to $2.17 billion, with growth in every technology and end market. Land mobile radio sales growth of 14% is well above our view of normalized growth for the technology and shows the power of Motorola’s upgrade cycle at customers to its next-generation radios. Motorola’s backlog of orders remains tremendous, up 5% year over year to $14.1 billion, and is an important signal of broad-based, healthy demand, in our view.

Non-GAAP gross margin of 48.9% rose an impressive 310 basis points year over year and is the highest first-quarter margin that the company has reported in several years. Strong profitability reflected higher volume, the effect of pricing actions from 2022, and improving supply constraints that weighed on profitability in prior quarters.