Oppenheimer Thinks The Market Might Be Confused About Zebra Tech, Likes Stock

In a new report, Oppenheimer analyst Holden Lewis addressed some misconceptions the market may have about Zebra Technologies. Lewis believes that investors are too quick to draw comparisons between Zebra and rival NCR Corp when there are key distinctions between the two stocks that make Zebra a much better play.

Skin-Deep Similarities

Lewis conceded that, on the surface, Zebra and NCR look worthy of comparison. Both companies are in the scanning/printing business, and both companies recently made large acquisitions that required the addition of leverage.

However, according to Lewis, the market’s punishment of Zebra for NCR’s bad deal is undeserved.

Related Link: Wedbush's Luria: $10 Billion Bid For NCR "May Be Too High"

NCR Investors Jump The Gun

Initial enthusiasm for NCR’s deal was followed by a two-year, 35 percent decline in share price, as the deal failed to live up to expectations. Zebra’s post-Enterprise deal trading has also been poor, but Lewis believes that the market is overly pessimistic about Zebra.

Differences

Lewis described Zebra as more “narrowly-focused” than NCR. He explained that Enterprise runs a very similar and highly complementary business model, and Zebra has no “obvious non-acquisition-related distractions.”

Buying Opportunity

Lewis sees Zebra’s post-deal slide as a buying opportunity for investors and the market’s judgement that the Enterprise deal did more harm than good is premature.

“If the fundamentals don’t follow suit and coming quarters more fully capture the potential of the deal, sentiment may improve, justifying our favorable [Outperform] rating and $110 price target, in our view,” Lewis concluded.

Oppenheimer will be watching in upcoming quarters for confirmation that Zebra’s Q2 margin cuts were a one-time occurrence, rather than the beginning of a disturbing trend.