There are a few companies that are quietly dominating their market, but they seem to be overlooked as they are not as sexy as other stocks. Today I am going to an obvious black and white, plain, and simple winner – Zebra Technologies.
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Who are Zebra Technologies?
Zebra manufactures bar code scanners, RFID readers, mobile computers, and printers that capture real-time data. That means most things that beep, scan, or chime on a product are a result of Zebra technologies. When I mentioned before that there are those quiet dominators of the market, Zebra is no different. They current boast a market share of 40% in barcode prints (Nov 2020). Next place? Only 12%. That is just pure domination.
Zebra Technologies current sits on around $26 Billion market cap and produced some great results as part of their recent earnings just over a week ago (Feb 11, 2021). Revenue in the fourth quarter increased 10% to $1.31 billion, topping the consensus estimate of $1.25 billion in sales. That resulted in adjusted net income of $240 million, or $4.46 per share. Wall Street analysts were looking for just $3.80 per share in adjusted profits. The technology company, which provides bar code scanners and handheld readers, reported adjusted EBITDA of $308 million. In 2021, revenue should grow 10% to 14% in a range of $4.9 billion to $5.1 billion.
Zebra technologies – the big picture
So, we know that Zebra technologies have a strong market share. We know that barcodes are on everything in the majority of stores but one aspect that a lot of traders do not think about are the logistics of asset tracking and management. Think about all the parcels, pallets, boxes etc that get delivered. They are all identified by their bar code or RFID tag. Lucky Zebra technologies are involved in both. Zebra has not been sitting on their haunches either (pun intended). They made some intriguing acquisitions.
In 2014, they acquired Motorola’s Enterprise business for $3.45 billion in cash. So, This new purchase helped them dive deeper into logistics using mobile devices (scanning equipment) and data gathering. Being able to use this wealth of knowledge is paying handsomely for them, with the stock up roughly 800% since 2014 and over 100% in the last 12 months alone. Albeit a lot of the growth was on the back of the explosion most stocks felt in 2020.
Open your wallet or purse and I guarantee you will find several things that have a barcode on them or utilise an RFID chip. This arm of the business, called Enterprise Visibility and Mobility (EVM) brings together all the right parts. RFID, logistic monitoring, mobile computing, and data capture now account for two-thirds of their revenue. Nice little moneymaker!
Is now the time to invest in Zebra technologies?
Let us have a look at some of the areas where Zebra technologies are making waves – areas you would not normally think about. Warehouses, hospitals and… the NFL? Using its RFID technology, Zebra can track players movements, track the ball and where it goes, analyse game stats. These kinds of stats are invaluable to a team and individual teams seek out this analysis from Zebra through partnerships. In this modern world, data is king and particularly in sports, the more data you have, the better.
Some of these massive factories are taking advantage of the data Zebra technologies can produce – Ford is one of them. They use Zebra’s real-time tracking system to locate inventory and tools within 10 feet, improving productivity across its manufacturing facilities. So, in hospitals like Truman Medical Centres in Kansas City, they can analyse data from scanned charts, bracelets, and staff communication all on Zebra mobile devices – hello Motorola! This allowed them to optimize surveillance and workflow, decreasing the number of patient-related falls and medical errors. Which, you know, is kind of important in a hospital.
Join the black and white family!
As noted above, acquiring Motorola’s enterprise business was only one instance. In just the past two years, it has acquired
- Temptime (remote temperature monitoring).
- Reflexis Systems (workforce management software),
- Profitect (retail analytics), and
- Cortexica Vision (machine vision and AI).
And I have even begun to break down the Internet of Things (IoT) connection. the opportunity here is huge. Stick an RFID tag or even a barcode onto something, and it is easy to link it into the Internet of Things. That is just a foot in the door to providing real IoT solutions.
What is the catch?
The biggest risk to Zebra technologies now is maintaining its market share and to keep their current business relationships. As they start to expand into the IoT environment and other companies push into their territory, particularly for RFIDs, Zebra must be careful that they can continue to offer something the others cannot. Several companies specialise in specific areas, like printing or scanning, that could take some market share away from Zebra. If it can hold on and maintain these areas, then it is looking good for the future.
Should you buy Zebra Technologies?
As much as I hate to say it, it is up to you. I hold Zebra in my eToro portfolio. It currently makes up about 3% of my overall portfolio. I will continue to buy until it is around 4-5% of my portfolio. It is up around 85% since I first bought in late last year. One thing that sticks with me is that barcodes have been around for decades and there is still no cheaper way to identify/link/track an object on a database.
The sheer number of items that can use a barcode and the large number of metrics that can be created from tracking said object is significant. So, whilst they have been at the front of barcode creation and reading and using RFID tags – their future is in using that information. It will help with logistics and data to analyse. So, all companies love that stuff – the more data the better.
So, I think it is all there in black and white – Zebra is a dark horse in my portfolio. One that is going to continue to grow if they can continue to maintain their relationships and analyse the data that is important to them.
So, what do you think? Is it a buy?
The piece above was written with information sourced from Motley Fool, Zebra Technologies investor relations, Bloomberg and Investors.
