Zebra Technologies CorpZBRA410,05 $
Today we have a very speculative idea: take shares in the manufacturer of devices and services for inventory management of goods Zebra Technologies (NASDAQ: ZBRA), in order to capitalize on the rebound of these stocks after a strong fall.
Growth potential and validity: 18,5% behind 14 Months; 48,5% behind 3 of the year; 9% per year for 9 years. In all cases, the possibility of separating one of the company's divisions into a separate issuer is taken into account..
Why stocks can go up: because they fell hard.
How do we act: we take shares now by 408,7 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
The company supplies solutions in the field of inventory management: goods, Software and services. We have already published an idea about this company, therefore, we will not dwell on the description of the company's business again.
Data are based on the company's annual report for 2021. We focus your attention only on the main points, which will be important to our history today:
- physical goods, which the company produces itself, — 86,1% from proceeds;
- software solutions — 13,9%;
- the physical goods segment has a gross margin 46,55%, which is a little lower, than the software segment 47,7%;
- the company's solutions help to automate warehouse management.
Arguments in favor of the company
Fell down. Last time we took shares of the company at a price 486,73 $ in order to sell them for 550 $ during the next 15 Months. As a result, in six months, by November 2021, they grew to 607 $.
Since then, the stock has fallen heavily and is now worth 408,7 $. This happened against the background of a slowdown in the growth of the company's financial indicators and a slight decrease in margins.. Without denying these problems, I still believe, that, taking into account the points described below, we can expect a rebound in shares.
Still promising. The sphere of online commerce grew, is growing and will continue to grow - and this will already support the demand for Zebra solutions at a fairly high level. All of these warehouses need product counters., barcode readers and inventory management software.
There will be more and more of these warehouses.: Approximately 568.2 million square feet of warehouse space currently under construction in the US, which is much more, than in 2020 and 2019, 368,6 and 329.9 million square feet respectively.
The large-scale logistics crisis in the United States and around the world is forcing American and other companies to invest heavily in the development of both their logistics capacities., and inventory management systems.
In sum, this creates a very positive environment for the company's business.. I think, that these trends will allow it to exceed analysts' expectations and show a good result during the year.
May ask. A strong drop in prices, combined with good business data, could make Zebra a target for an activist investor. Let's figure it out, what exactly such an investor can demand.
Firstly, dividends. If you're very lucky, then it will turn out to be knocked out of the company's management 10 $ per share per year, and this is ⅔ of the company's annual profit, what will give with the current share price 2,5% per annum. This, however, will be hampered by financial circumstances.
Secondly, Division of the company: an activist can achieve spin-off of the software division into a separate issuer. If he succeeds., then as a result, Zebra shareholders will receive shares in the enterprise, which can grow much faster than a single Zebra. Mainly through the purchase of the entire software company by someone: now there is a huge demand for software in the field of logistics and the costs in this area are not stingy.
Can buy. I still believe, what the company can buy, - and its not very large capitalization of $ 21.58 billion has this. I see Zebra as the most likely buyer Amazon. Here's why. Amazon is, in fact, two different companies under one roof:
- A Brilliant and Super Marginal Cloud Computing Business (AWS).
- Extremely low margin online retail business, which periodically rolls into losses.
Retail business, in fact, parasitizes on the cloud business: all excess profits go to warehouses and other additions to Amazon retail.
All the talk about, that “this is how Amazon develops its retail business - and all competitors go to waste!», - that's bullshit: The company is already under serious pressure from regulators., and the biggest sellers on its platform are starting to merge, which greatly increases their negotiating position.
The bigger Amazon's retail business will become, the more convex these problems will become. When Amazon flexes its muscles and raises prices, regulators will come to it and level its achievements in the field of retail.
In parallel, Amazon's competitors in the cloud are Microsoft, Google, Alibaba - increasing investments in their capacities, while the Amazon retail segment consumes investments as if it were not in itself, showing not particularly amazing growth rates.
Over the next five years, it could turn out like this, that Amazon competitors will greatly reduce their backlog in the cloud, and AWS margins will start to drop. For the company, this will be a disaster.: due to AWS, the entire enterprise is kept. And AWS does not receive money because, that Amazon management is chasing the chimera "Amazon in every home!».
Amazon even announced a $10 billion share buyback program — a measly penny given its $1.5 trillion capitalization — and a share split. They did it., to avoid an unpleasant conversation with shareholders about the need to "divorce" the cloud and retail businesses. But these are all palliatives.
Now wages are rising in the US and most of Europe, including employees of Amazon warehouses. In the United States, the trade union movement is increasing its influence among the employees of the warehouses of the company.
Considering, that the management of the company in the field of logistics is distinguished by the maximum, even caricature cruelty in terms of "cost reduction" at the expense of people, Amazon is extremely interested in modernizing its warehouses. Zebra Solutions Automate Warehouse Operations or Get the Most out of Human Workers.
For this reason, I would expect, that Amazon will buy Zebra. Well, or at least enter into a strategic partnership with it - and investors will run into Zebra shares, because "hey guys, it's Amazon!». Amazon's interest here is to modernize and increase the margins of its retail business., which hangs like a heavy yoke around the neck of AWS.
Well, or another option is possible - Zebra will buy shares, for example, Warren Buffett will say: "Well., I think here, that warehouse software and hardware is an interesting topic”, - and crowds of opinionless investors will crowd into the company's shares literally because, that "well, grandfather says, normal theme is yours". So it was recently with HP, for example.
Anyone can be a Zebra buyer., but still I see Amazon as the most likely buyer or partner for her.
What can get in the way
Concentration. During, past since the first idea, the situation with the redundancy of the share of the largest customers in the structure of the company's revenue has not improved much: three biggest unnamed clients give her 22,3, 13,6 And 12,6% from its revenue. A sudden change in relationship with one of them may adversely affect the company's financial statements..
Not so cheap. P / S at the company 3,98, P / E — 26,76. Calling her expensive, certainly, it is forbidden. But also to say, that Zebra stock is obscenely cheap, it won't work either. This fact will inhibit the growth of quotations.
Promising, but still. Temporary easing of quarantines led to a slowdown in the rate of online commerce reception. This "thaw" won't last forever, but for now, it will have a dampening effect on Zebra's growth.
Honey or chill. Logistical challenges, that increase demand for the company's products, also bring with them troubles for her: she herself suffers and will still suffer for a couple of quarters from a lack of raw materials, late delivery of components and other problems.
"The wrong one is happy, who is good in full ... " The company is heavily indebted: 3,231 billion, of which 1.8 billion must be repaid within a year. She doesn't have a lot of money at her disposal.: 332 million on accounts plus 752 million debts of counterparties.
Zebra is also spending heavily on business expansion.: it recently bought machine vision vendor and developer Matrox Imaging for a whopping $875 million.. Transactions of this kind make sense, but still costly. Zebra says, that Matrox is more marginal than herself. Matrox bought for 8,75 its annual revenue.
Together, these factors prevent Zebra from introducing a meaningful dividend: the company is engaged in the development of its business, she's not stupid.
What's the bottom line?
The company's shares can be taken now by 408,7 $. Then there are three options:
- wait for the stock to rise to 486 $. This is a relatively modest goal., so, I think, we will reach it in the next 14 Months;
- keep up 607 $. Here it is better to prepare to keep for three years;
- if last time you bought stocks with an eye to long-term investment, now you can buy these shares.
Well, in all cases, we take into account the possibility of separation of the company. Let's say, it can spin off the software division into a separate issuer and its shares will rise strongly, while the shares of the "main" Zebra will fall.
How it works in practice, you can see in the comments to the idea on Synnex.
