Zebra Tech Has To Balance Innovation Against Near-Term Challenges: KeyBanc

KeyBanc analyst Ken Newman initiated coverage on Zebra Technologies ZBRA with a SectorWeight rating.

Newman views ZBRA as a solid market leader in the Automatic Identification and Data Capture (AIDC) industry, with market solutions in mobile computing, data capture, RFID, barcode scanning and printing, and real-time location systems, to name a few. 

Also Read: Zebra Technologies Stock Plunges After Q2 Performance: Earnings Miss, Guidance Cut and More

ZBRA will drive continued innovation, particularly in adjacent markets, including industrial machine vision and Autonomous Robotics. While Newman sees solid catalysts for improved cycle growth over the longer term. Still, near-term demand challenges (particularly in the company’s consumer-facing end markets) likely keep risk/reward balanced at current levels. 

Although the rate of decelerating estimate revisions will probably be closer to the bottom than not, he thinks accurately timing the cycle inflection point remains difficult as visibility into forward capex budgets remains limited. 

Newman is taking a conservative approach toward revenue growth as ZBRA’s customers reset capex budgets. 

ZBRA has recently seen a broad-based decline in orders from both large and small/mid-tier customers, which could lead to a slow recovery in order rates. 

As the supply chain continues to improve and customers work through elevated inventory levels, the analyst is cautious that demand may not return to the extraordinary levels seen during the pandemic. 

He remains wary of further customer destocking, which could extend near-term demand challenges. Based on discussions with customers, ZBRA expects that destocking trends will moderate in 4Q. However, Newman expects limits to forward visibility into destocking trends, and conditions could deteriorate intra-quarter faster than anticipated. 

ZBRA’s push into adjacent markets could provide longer-term catalysts for growth. Specifically, ZBRA’s stimulation into industrial machine vision inspection and Autonomous Mobile Robots (AMRs) via its Fetch acquisition could yield longer-term growth catalysts as the adoption of autonomous solutions continues to take hold. 

The analyst projects 3Q revenue of $920.1 million vs. consensus of $928 million and EPS of $0.76 vs. consensus of $0.82. The analyst projects 4Q revenue of $1.02 billion vs. consensus of $1.01 billion and EPS of $1.70 vs. consensus of $1.72.

Newman also projects FY23 revenue of $4.56 billion vs. consensus of $4.55 billion and EPS of $9.69 vs. consensus of $9.74.

Price Action: ZBRA shares closed lower by 1.41% at $230.33 on the last check Tuesday.