In my recent research, I came across an article entitled, “10 Great Companies that Lost their Edge.” Included in that piece were these ‘once great’ businesses: Blockbuster, Dell, Eastman Kodak, Microsoft (MSFT), Motorola (MSI), Sears (SHLD), Sony (SNE), Sun Microsystems, Toys “R” Us and Yahoo (YHOO).
It’s interesting how things can change over a five-year period, isn’t it? Blockbuster is gone, Toys “R” Us and Dell are now private companies, Eastman Kodak—once bankrupt—is only a fraction of what it once was, Sears, Sony, and Yahoo have managed to go even further downhill, and Sun Microsystems was acquired by Oracle. Only Microsoft and Motorola have managed to not only survive, but prosper, as they reinvented themselves.
Competition and a reluctance to participate in the internet development helped dethrone Microsoft as the king of software in the late 1990s. Legal and antitrust issues dogged the company in the 2000s, but a new CEO, Satya Nadella, has brought the company into a new era of growth and cooperation with other developers in which the old Microsoft would never have participated.
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Likewise, Motorola has also reinvented itself—for the better.
In its early days, the company manufactured car radios and TVs, and even the transceiver used by Neil Armstrong to broadcast “one small step for a man, one giant leap for mankind” from the moon. Over the years, it progressed to making telephone handsets, pagers, cellular phones and systems and cable modems.
But along the way, competition drove sales down and Motorola lost market share, culminating in losses of $4.3 billion from 2007 to 2009. But instead of continuing to shrink and fade away, Motorola switched gears, dividing itself into two independent companies—Motorola Mobility and Motorola Solutions. Mobility was spun off and later acquired by Lenovo.
Today, Motorola Solutions has regained traction. It has reduced its workforce, moved its headquarters and is making inroads in the cloud, primarily relying on Amazon Web Services as it elevates its data centers to the cloud.
Charles A. Carlson, editor of DRIP Investor and contributor to our Wall Street’s Best newsletters, recently recommended Motorola Solutions (MSI) to the subscribers of Wall Street’s Best Dividend Stocks. Here’s what he had to say about Motorola stock.
Reasons to Buy Motorola Stock
“Dividend growth has cooled a bit this year, but not at Motorola Solutions (MSI). Indeed, this provider of communications equipment and services just raised its dividend nearly 15% to a quarterly rate of $0.47 per share, payable January 13. A company doesn’t raise its dividend double digits if it is not confident in its future, so I expect to see good numbers from the company in future quarters.
“Motorola Solutions operates in two segments. The company’s Products and Services unit offers a variety of network infrastructure, devices, accessories, and software for government, public safety and first-responder agencies, municipalities, and commercial and industrial customers.
“The firm is coming off a strong third quarter in which both revenue and profits beat analysts’ expectations. Revenue grew 8%, while per-share earnings from continuing operations rose 67%. The Services segment was the big grower, with revenues up 23%. This unit is benefiting from the acquisition of Airwave, the largest private operator of a public safety network in the world. The deal expanded the company’s overseas business, especially in the United Kingdom where Airwave is based.
“Motorola recently jumped back into the acquisition arena with the purchase of Spillman Technologies, a provider of law enforcement and public safety software solutions to more than 1,700 agencies throughout the U.S.
“Motorola expects revenue growth of 9% to 10% in the fourth quarter, with per-share earnings in the range of $1.82 to $1.87. The consensus estimate is $1.87. Long term, the company seems well-positioned to benefit from what seems to be a growing global commitment to public safety.”
As Motorola transitions to the cloud, we can expect more acquisitions like its recent purchase of Spillman Technologies, which will add to its high tier command center software products.
As well, the company stands to benefit from rising trends in its industry, including:
The proliferation of the Internet of Things (IoT), as the connectivity of smart devices continues to expand. International Data Corp. estimates that global spending on IoT will grow at a 19.2% compound annual growth rate (CAGR) to nearly $1.7 trillion in 2020 from $698.6 billion in 2015.
Increasing M&A marketplace, particularly in emerging markets such as China, India and Mexico. In 2016, there have been six telecom M&A deals worth more than $45 billion, and industry experts expect the trend to continue.
The rapidly-growing field of mobile payments, which are forecast to reach 20% of all transactions by 2020.
Long-Term Evolution (LTE), the (4G) super-fast wireless communications technology, is growing leaps and bounds around the world. Research firm 4G Americas reports that there are 907 million LTE subscribers globally, up from 635 million at the end of first-quarter 2015. Estimates are for 4G to reach 3.6 billion by the end of 2020.
LTE-Advanced Pro (3GPP Release 13) will facilitate the move from 4G to 5G, which should begin next year, according to Verizon, and become rapidly adopted by 2020. That transition is expected to put some $104 billion into the coffers of telecom infrastructure developers.
Each of these trends should help Motorola Solutions continue to stand out from its peers. The company has come a long way. As Charles Carlson noted in his recommendation of Motorola stock, the company walloped analysts’ estimates, beating EPS forecasts by $0.17 and revenue estimates by $17 million in its most recent quarter.
Motorola stock is also on the ‘Buy’ list at Zacks, with the research firm noting its increases in earnings forecasts (46% vs. 1% for the industry) as an attractive development. And Yahoo! Finance analysts are predicting double-digit growth for this year, as well as the next five years for the company.
Motorola is a great example of a company that has created a blueprint for survival and prosperity. The stock pays a decent dividend and with earnings going up, the price should rise too. Motorola stock is a good one to add to your 2017 New Year’s resolutions.
