Motorola Solutions (NYSE: MSI) – one of the largest suppliers of land-mobile-radio solutions – has seen its stock rise 11% year-to-date, underperforming the broader S&P 500 which remains up by about 17% over the same period. The company recently posted a stronger-than-expected set of Q2 2023 results, with revenue rising by about 12% year-over-year to $2.4 billion, while adjusted earnings stood at $2.65 per share, led by stronger sales of land mobile radio and video security and access control hardware, particularly in North America. The company’s software and services relating to LMR, Command Center, and video also saw some gains. Motorola also upped its guidance for the full year, projecting revenue of $9.89 billion at the mid-point, up from a previous guidance of $9.75 billion.
Interestingly, MSI stock had a Sharpe Ratio of 0.8 since early 2017, which is higher than the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
So is MSI stock still a buy at current levels of around $286 per share? MSI stock currently trades at about 25x forward earnings. Although this is a relatively high multiple in the current market environment, there are a couple of reasons to consider the stock. MSI’s core LMR product is a cash cow of sorts, given that customers are generally locked in once they buy into the system. Moreover, governments don’t meaningfully scale down public safety-related budgets, even during economic downturns. The company’s growing cash generation has helped it to raise its dividend at an average rate of over 10% over the last five years to above $3.50 per share. Motorola’s revenue visibility is also improving. The company ended the quarter with a Q2 backlog of a record $14.3 billion, up 6% from the year-ago quarter. MSI has also been investing its cash flows from its LMR business into strategic acquisitions in the public security space. Over the last few years, the company expanded into areas including video security and command center software. Late last year, Motorola acquired incident management company Rave Mobile Safety. We value MSI stock at about $302 per share, which is 5% ahead of the current market price. See our analysis Motorola Valuation: Is MSI Stock Expensive Or Cheap? for more details.
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