Analyst Note| William Kerwin |
We are raising our fair value estimate for narrow-moat Motorola Solutions to $185 per share, from $175, after the firm reported third-quarter results above our expectations and raised guidance for the rest of the year. We think Motorola is benefiting from strong large-deal demand for its land mobile radios, and are especially impressed with its margin performance despite ongoing supply constraints and logistical cost headwinds. We also think the quarter again exemplified the upside Motorola earns--both in terms of sales and profitability--from its budding video and software businesses, which we expect to drive growth and margin expansion over the long term. Still, we think the firm’s current valuation is out of reach, and that the market is baking in a greater mix shift toward these businesses (still only 21% of sales) than we think is feasible. We recommend investors wait for a pullback.