On Tuesday, Truist Securities updated its outlook on Zebra Technologies (NASDAQ:ZBRA), increasing the price target slightly to $383 from $379, while maintaining a Hold rating on the stock. The adjustment followed Zebra's third-quarter financial results, which surpassed consensus estimates in several key areas.
Zebra Technologies' stock experienced a 5% rise compared to the relatively flat performance of the S&P 500, after the company reported third-quarter earnings. The company's sales saw a significant increase of 30.6%, signaling a broad recovery in demand across most of its product lines. This growth was more distributed than in the previous quarter, which mainly saw an increase in mobile computing.
The firm noted a resurgence in substantial orders from logistics and retail customers in North America and EMEA, which had not been anticipated in Zebra's guidance. All end markets reported double-digit growth, although the manufacturing sector trailed slightly. By segment, Asset Intelligence & Tracking (AIT) sales rose by 25.8% due to gains in printing and RFID, while Enterprise Visibility & Mobility (EVM) sales saw a 33% increase, propelled by mobile computing and data capture solutions. Service and software revenues expanded by 4%.
Geographically, sales in North America increased by 22%, EMEA by 47% with notable strength in Northern Europe, Asia Pacific by 22%, and Latin America by 42%. Zebra also achieved a record adjusted gross margin of 49.1%, a year-over-year improvement of 430 basis points, driven by volume leverage and a favorable business mix. Adjusted operating expenses as a percentage of sales improved by 580 basis points year-over-year. EBITDA margins jumped to 21.4%, exceeding Zebra's projected range of 20-21%.
Looking ahead to the fourth quarter, Zebra anticipates top-line growth of 28-31%, bolstered by ongoing recovery across most product lines and including several large North American retail customers. The company expects adjusted EPS to be between $3.80 and $4.00, surpassing the consensus estimate of $3.53. Furthermore, Zebra raised its full-year 2024 guidance to a midpoint of $13.40, up from the previous midpoint of $12.60, and increased its free cash flow forecast to at least $850 million from the prior estimate of at least $700 million.
Zebra now sits comfortably within its targeted leverage ratio of 1.6x, providing ample capacity for stock repurchases and/or disciplined mergers and acquisitions.
In other recent news, Zebra Technologies Corporation reported encouraging third-quarter results, with adjusted earnings per share of $3.49, exceeding analysts' estimates of $3.23. Revenue also saw a significant increase, rising 31.3% year over year to $1.26 billion, surpassing the consensus forecast of $1.22 billion. These recent developments reflect the company's successful business strategies and the results of restructuring actions.
Looking ahead, Zebra Technologies forecasts a robust fourth quarter, with sales growth predicted to lie between 28% and 31% compared to the previous year. The company also anticipates adjusted earnings per share to be in the range of $3.80 to $4.00, notably higher than analyst projections of $3.50.
The company's Q3 gross margin expanded to 48.8% from 44.7% a year ago, primarily driven by volume leverage and business mix. The adjusted EBITDA margin also showed significant improvement, rising to 21.4% from 11.6% in the prior-year period.
In addition to these positive financial results, Zebra Technologies completed restructuring actions that are expected to generate approximately $120 million in net annualized cost savings. The company now anticipates full-year free cash flow of at least $850 million, reflecting its continued leadership in the market.
InvestingPro Insights
Zebra Technologies' recent performance and positive outlook are reflected in the latest InvestingPro data and tips. The company's stock price has shown remarkable strength, with a 75.49% return over the past year and currently trading at 97.49% of its 52-week high. This aligns with the InvestingPro Tip that Zebra has delivered a "high return over the last year" and is "trading near 52-week high."
The company's profitability, as highlighted in the article, is further supported by InvestingPro data showing a gross profit margin of 46.52% for the last twelve months as of Q2 2024. This robust margin underscores Zebra's ability to maintain pricing power and efficiency across its product lines.
While Zebra's growth prospects appear strong, investors should note that the stock is trading at a high valuation, with a P/E ratio of 85.72. An InvestingPro Tip cautions that Zebra is "trading at a high earnings multiple," which may be a consideration for value-oriented investors.
For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Zebra Technologies, providing a deeper understanding of the company's financial health and market position.
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