Is Zebra Technologies (ZBRA) Modestly Undervalued?

On August 18, 2023, Zebra Technologies Corp (

ZBRA, Financial) recorded a daily gain of 2.24%, despite a 3-month loss of -2.63%. With an Earnings Per Share (EPS) (EPS) of 12.51, the question arises: is the stock modestly undervalued? This article delves into an analysis of Zebra Technologies’ valuation, encouraging readers to explore the details that follow.

About Zebra Technologies Corp (ZBRA, Financial)

Zebra Technologies is a leading provider of automatic identification and data capture technology to enterprises. Its solutions, primarily serving the retail, transportation logistics, manufacturing, and healthcare markets, include barcode printers and scanners, mobile computers, and workflow optimization software. With a market cap of $14 billion and an EPS of 12.51, Zebra Technologies’ stock price stands at $271.98, while its fair value (GF Value) is estimated at $369.98. This discrepancy suggests that the stock might be modestly undervalued.

Understanding the GF Value of Zebra Technologies

The GF Value is a unique measure of a stock’s intrinsic value, considering historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price significantly surpasses the GF Value Line, the stock might be overvalued, leading to potentially poor future returns. Conversely, if the stock price is considerably below the GF Value Line, the stock might be undervalued, suggesting higher future returns.

Currently, Zebra Technologies’ stock is believed to be modestly undervalued, as per the GF Value estimate. This implies that the long-term return of its stock is likely to exceed its business growth.

Financial Strength of Zebra Technologies

Before investing in a company, it’s crucial to assess its financial strength. Investing in companies with poor financial strength can lead to a higher risk of permanent loss. By looking at the cash-to-debt ratio and interest coverage, we can understand a company’s financial strength. Zebra Technologies has a cash-to-debt ratio of 0.03, which is worse than 98.36% of companies in the Hardware industry. However, its overall financial strength is rated 5 out of 10, indicating fair financial strength.

Profitability and Growth of Zebra Technologies

Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Zebra Technologies has been profitable 8 out of the past 10 years, with an operating margin of 16.76%, which ranks better than 89.26% of companies in the Hardware industry. Overall, its profitability is ranked 8 out of 10, indicating strong profitability.

Growth is a crucial factor in a company’s valuation. Zebra Technologies’ 3-year average annual revenue growth is 10.2%, which ranks better than 67.16% of companies in the Hardware industry. The 3-year average EBITDA growth rate is 11.2%, which ranks better than 51.13% of companies in the Hardware industry.

ROIC vs WACC

Another way to determine a company’s profitability is to compare its return on invested capital (ROIC) with the weighted average cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, the company is creating value for shareholders. In the past 12 months, Zebra Technologies’ ROIC was 11.67, while its cost of capital was 12.79.

Conclusion

In summary, Zebra Technologies’ stock appears to be modestly undervalued. The company’s financial condition is fair, its profitability is strong, and its growth ranks better than 51.13% of companies in the Hardware industry. To learn more about Zebra Technologies’ stock, you can check out its 30-Year Financials here.

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