Growth Initiatives Not Under Pressure At Zebra Technologies

• Zebra Technologies Corp. (NASDAQ: ZBRA) shares are down 9 percent over the past six months, having lost 23 percent since August 3.
• Imperial Capital’s Jeff Kessler upgraded the company from In-Line to Outperform, while maintaining the price target at $115.
• Kessler believes that the company’s cost saving synergies and deleveraging initiatives have been overshadowed by a temporary rise in expenses and one-time items.

Zerba Technologies recorded pro forma revenue of $2.9 billion and adjusted EBITDA of $503 million for the latest 12 months ended July 4, 2015. As of that date, the company had $205 million in cash and total proforma debt of $3.1 billion.

Zerba Technologies completed the acquisition of Motorola Solutions’ Enterprise business on October 27, 2014. Analyst Jeff Kessler said that, following this purchase, the management initiated its integration plan and “we are seeing the positive impact of the much-anticipated synergies and deleveraging, which is now driving significant earnings acceleration.”

Kessler added that investors should not value Zebra Technologies based on “recent missed earnings due to changing business mix,” in view of the several quarters in which the company has successfully executed its core strategies. Instead, investors should value the company based on “management’s ability to bring out cost synergies, reduce product cost, and delever the balance sheet."

Imperial Capital noted, “As such, we are more positive now on the one-year potential upside from future revenue synergies, given complementary vertical markets.”

The revenue, adjusted EBITDA and adjusted EPS estimates for FY15 have been reduced from $3,657 million to $3,672 million, from $615 million to $603 million and from $5.65 to $5.26, respectively, to reflect the company’s revised guidance. The revenue estimate for FY16 have been raised from $3,838 million to $3,852 million, to reflect the impact of the integration of the Motorola business.