Zebra Technologies is a Buy Even After its Recent Run Up Zebra Technologies' (ZBRA) share price has surged 37.9% so far this year on the back of increased demand for its industrial automation solutions and e...

Zebra Technologies' (ZBRA) share price has surged 37.9% so far this year on the back of increased demand for its industrial automation solutions and enhanced product offerings. And because the company is now planning a strategic acquisition to accelerate its push into robotic solutions, we think its stock should keep rallying. Read on.

Global enterprise mobile computing company Zebra Technologies Corporation (ZBRA) offers enterprise asset intelligence solutions worldwide. The Lincolnshire, Ill., company operates through Asset Intelligence & Tracking (AIT) and Enterprise Visibility & Mobility (EVM) segments. A strong recovery in global business demand, as well as increasing spending by organizations on digitization and automation, have helped the company deliver strong results in the first quarter of 2021. ZBRA's organic net sales increased 26.8% year-over-year in its EVM segment and 21.4% in its AIT segment in its last reported quarter.

The stock has advanced 4% over the past month and 37.9% year-to-date. Closing yesterday's session at $530.14, ZBRA is trading just 3.6% below its 52-week high of $549.98. The company's management expects its net sales to increase by 38% - 42% from the prior-year period in the second quarter of 2021 as industries prioritize spending on advanced analytics. Given its strong momentum, we think ZBRA is poised to climb further in the near term.

Click here to check out our Industrial Sector Report for 2021

Here is what we think could shape ZBRA's performance in the coming months:

Growing Demand from Businesses

Last month, Maverik Adventure's First Stop, a premier convenience store brand, selected ZBRA's Reflexis Systems to streamline its labor operations and compliance, and store execution. The company's Reflexis ONE will be used by Maverik to create more efficient operations and achieve more accurate labor scheduling. Also, this month, Vera Bradley, a leading designer of luggage, women's handbags and travel items, selected Reflexis Appointments to help it offer a tailored customer shopping experience and manage appointments on Vera's website.

Acquisition Can Accelerate Growth

On July 1, ZBRA announced its plans to acquire a leading on-demand automation company—Fetch Robotics—to help its customers deploy automated workflows and automate manual material movement in any industrial facility with the help of its Autonomous Mobile Robots (AMRs). This acquisition should not only boost the growth of ZBRA's Enterprise Asset Intelligence, but also optimize its supply chain and help it deliver solutions that improve business operations through robotics.

Bullish Analyst Sentiment

A $3.93 consensus EPS estimate for the next quarter, ending September 2021, indicates a 20.2% improvement year-over-year. Furthermore, ZBRA's EPS is expected to rise 33.4% in the current year, and at the rate of 10% per annum over the next five years.

Analysts expect ZBRA's revenues to rise 15.2% year-over-year to $1.31 billion in the next quarter, 20.3% in the current year and 4.2% in its fiscal year 2022.

Impressive Financials

For the first quarter, ended April 3, 2021, ZBRA's net sales increased 28% year-over-year to $1.35 billion. Its gross profit rose 38.5% from its year-ago value to $655 million, while its gross margin came in at 48.6% for this period, representing a 360-basis-point increase from the prior-year period. This increase can be attributed primarily to higher service and software margins, as well as a favorable business mix. ZBRA's non-GAAP net income surged 77.9% from the prior-year quarter to $258 million, while its non-GAAP EPS rose 79.4% year-over-year to $4.79. Also, the company's adjusted EBITDA margin stood at 25.3%, up 620 basis points year-over-year.

POWR Ratings Show Promise

ZBRA has an overall B rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. ZBRA has a B Momentum Grade, which is consistent with the stock's 99% gains over the past year.

Also, in terms of Growth Grade, ZBRA has a B. Analysts' expectation of the company's revenue and earnings growth is reflected in this grade.

Click here to see the additional POWR Ratings for ZBRA (Value, Stability, Quality, and Sentiment).

The stock is ranked #20 of 84 stocks in the A-rated Industrial – Machinery industry.

If you're looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, you can access them here.

Click here to check out our Industrial Sector Report for 2021

Bottom Line

ZBRA's growing portfolio of industry-tailored solutions and automation capabilities, in an increasingly on-demand economy, should continue to drive its sales and earnings. In fact, with the U.S. economic recovery gaining steam and organizations returning to full operational capacity, the company should see significant improvement in all its business segments. With investor optimism surrounding ZBRA's upgraded second quarter guidance, we believe the stock has plenty of remaining upside to deliver. So, it could be a wise bet now.

ZBRA shares were unchanged in premarket trading Thursday. Year-to-date, ZBRA has gained 37.94%, versus a 17.08% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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