Macquarie Upgrades Motorola Solutions To Neutral

Macquarie has upgraded Motorola Solutions Inc (NYSE: MSI) to Neutral from Underperform on its recent acquisition of UK-based Airwave and valuation.

"Well flagged near-term FX and macro headwinds in LatAm/ Europe as well as a decline in iDEN will likely lead to an organic top-line decline of 2% this year. However, an accretive acquisition of UK-based Airwave and more normalized consensus buyback estimates have brought multiples to a reasonable 15.7xand 10.4x'16 EPS and EBITDA, respectively. As such, we have become less bearish on MSI's prospects," analyst Andrew DeGasperi said in a client note.

The analyst said consensus buybacks have come down to a more rational level and closer to his estimate of about $1 billion a year. The $1.6 billion acquisition of Airwave is expected to generate $550 million/$250 million - $300 million p.a. of revenue/EBITDA, respectively and add about 12 percent to Macquarie's 2016 non-GAAP EPS estimate.

The brokerage raised its 2016 EPS estimate by 16 percent to $4.53 to reflect the accretive acquisition of Airwave and is in line with guidance for $4.45-$4.65. Analysts, on average, expect earnings of $4.26 a share.

However, the analyst noted that the growth remains sluggish in several markets, with LatAm and Europe each to be a $40 million headwind due to iDEN and tough comps from Nordnett last year. Forex will be a $20 million headwind.

"We expect N. America growth of 2%, to reflect higher product refresh rates and software contract attachment rates. FirstNet still remains a long term opportunity, with awards expected to be announced in 4Q16," added DeGasperi, who has a price target of $75 on the stock.