Motorola Solutions: Earnings Preview

| About: Motorola Solutions, (MSI)
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Motorola Solutions Inc. (NYSE:MSI) is slated to release its first quarter 2011 results on Wednesday, April 25, before the opening bell. The current Zacks Consensus Estimate for the first quarter is pegged at 47 cents, representing an annualized growth of 1.3%.

With respect to earnings surprises over the trailing four quarters, Motorola Solutions has outperformed the Zacks Consensus Estimate in all the four quarters. The average earnings surprise was positive 27.26%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Fourth Quarter Recap

Quarterly GAAP net income from continuing operation was $184 million or 54 cents per share compared with $292 million or 49 cents per share in the prior-year quarter. However, adjusted (excluding special items) EPS in the fourth quarter of 2011 came in at 78 cents, surpassing the Zacks Consensus Estimate of 74 cents.

Quarterly total revenue was $2,300 million, up 5% year over year and marginally ahead of the Zacks Consensus Estimate of $2,286 million. Quarterly gross margin was 50.4% compared with 49.8% in the prior-year quarter. Quarterly operating margin stood at 12% versus 12.4% in the prior-year quarter.

Agreement of Estimate Revisions

In the last 30 days, out of the five analysts covering the stock, none revised the estimate over the first quarter and second quarter of 2012. Similarly, for fiscal 2012 and 2013, out of the 6 analysts covering the stock none raised or slashed the EPS estimate.

Magnitude of Estimate Revisions

For the ongoing quarter of fiscal 2012, the current Zacks Consensus Estimate was just a penny above the previous estimates of 46 cents. Likewise, for the second quarter of fiscal 2012, the current Zacks Consensus Estimate was just a penny above the previous estimates of 60 cents in the last 30 days.

For fiscal 2012, the current Zacks Consensus Estimate was in line with the earlier estimate of $2.73. However, for fiscal 2013, the current estimate is pegged at $3.27, which is also 4 cents above the earlier estimate.

Earnings Surprises

The first and second quarter of 2012 represent a 4.26% and 14.75% downside potential (essentially a proxy for future earnings surprises), respectively. Similarly, fiscal 2012 and 2013 reflect 4.26% and 14.75% downside potentials, respectively.

Our Take

Motorola's business model remains compelling and we believe that the company will be able to maintain its current top-line growth going forward, primarily due to the critical nature of the public safety network in the U.S. and massive growth potential in the Middle East. Furthermore, the company has entered into an agreement with Verizon Communication Inc. (NYSE:VZ) to install a standard-based public safety broadband network for mission-critical operations leveraging on the nationwide LTE network of Verizon, which we believe will act as a positive catalyst for the stock going forward.

Currently, Motorola Solutions Inc. has a Zacks #2 Rank, implying a short-term Buy rating.