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There has been rather 'slim pickings' around these parts both for blog entries and investment ideas. In fact the market tone has been rather dismal as in a reverse-Midas situation, everything I look at investment-wise has been turning from gold into something else. So with a bit of trepidation, I would like to share with you a stock that appears to well deserve a place on this website.
ZEBRA TECHNOLOGIES (ZBRA) IS RATED A BUY
Let me share with you some of the things that led me to this decision. I do not currently own any shares nor do I have any options in this stock. Zebra (ZBRA) came to my attention today when it made the list of top % gainers on the NASDAQ. As I write, ZBRA is trading at $33.10, up $3.72 or 12.66% on the day.
First of all, what exactly does ZBRA do?
According to the Yahoo "Profile" on ZBRA, the company
"...engages in the design, manufacture, and distribution of specialty printing devices that print variable information on demand at the point of issuance. Its printers are used to produce bar code labels, passive RFID smart labels and tags, card laminates, thermal transfer ribbons, receipts, wristbands and tags, plastic cards, and photographs."
And how did they do in the latest quarter?
Early this morning, Zebra Technologies announced 4th quarter 2007 results. For the quarter ended December 31, 2007, net sales came in at $233.6 million, up 11.3% from sales of $209.9 million in the same period the prior year. Net income was $30.8 million or $.45/diluted share, up from $21.4 million or $.30/diluted share last year.
The company beat expectations on both earnings and revenue. Analysts polled by Thomson Financial had predicted earnings of $.43/share on $226 million of revenue. The company also raised guidance on revenue in the 1st quarter of 2008, and confirmed guidance on earnings expectations.
This solid earnings report was enough to push the stock sharply higher today in trading.
What about longer-term results?
Reviewing the Morningstar.com "5-Yr Restated" financials on Zebra, we can see that revenue has continued its uninterrupted growth from $475.6 million in 2002 to $844.6 million in the trailing twelve months (TTM). Earnings have been more erratic with steady growth from $.95/share in 2002 to $1.59/share in 2004. However, earnings dipped to $1.47/share in 2005 and $1.00/share in 2006 and have only now rebounded to $1.45/share in the TTM. Outstanding shares are very stable at 70 million in 2002 and 70 million in the TTM.
Free cash flow is positive and growing with $100 million in 2004, $69 million in 2006 and $137 million in the TTM. The balance sheet is solid with $33 million in cash and $504 million in other current assets. Compared to the $93.3 million in current liabilities, this yields a current ratio over 5! The company has a very small amount of long-term liabilities listed at $12.3 million.
What about some valuation numbers?
Reviewing Yahoo "Key Statistics" on ZBRA, we find that this company is a mid cap stock with a market capitalization of $2.26 billion. The trailing p/e is very reasonable at 22.88. No PEG is reported.
According to the Fidelity.com eresearch website, the company has a Price/Sales (TTM) ratio of 2.39, well above the industry average of 0.82. Also per Fidelity, the Return on Equity (TTM) is below the industry average at 11.00%, with the industry average reported at 16.34%.
Finishing up with Yahoo, there are 68.02 million outstanding shares with 64.70 million that float. As of 12/26/07, there were 2.98 million shares out short representing 4.5 trading days of volume (the 'short ratio'). No dividends are paid and the last stock split was a 3:2 split on August 26, 2004.
What does the chart look like?
Reviewing the 'point & figure' chart on Zebra from StockCharts.com, we can see that this stock has an awful chart! The stock peaked at $62/share back in September, 2004, only to start a stepwise descent down to a recent low of $28 in January, 2008. The stock has been rebounding today, and on a technical basis, would like to see the stock trading above $41 before feeling like the downward trend may have been broken.
Summary: What do I think?
Well, I like this stock. But with a couple of exceptions, the stock is a good pick. First of all, they had a great quarterly report. They beat expectations and raised guidance. I would like to see them do that again the next quarter as well! Longer-term, they have gotten 'off the track' the last couple of years and appear to be turning things around. It may be a bit early to predict whether this 'fix' is working. Valuation-wise, the Price/Sales is a tad rich and the Return on Equity, a tad anemic. Finally, the chart looks pretty awful. But certainly not over-valued.
This is certainly not a typical CANSLIM pick. This is more of a GARP pick with the stock showing much better value in association with a recent strong growth record. It would be nice to see another quarter of solid earnings and revenue growth beating expectations. But like a reverse 'cockroach theory', when you see one good result like this, I do not think it would be surprising to see another in the future!
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Yours in investing,