Zebra Applied sciences: Driving The Secular Progress Of Digital Provide Chains (NASDAQ:ZBRA)

Introduction

The Zebra Applied sciences Company (NASDAQ:ZBRA) has been on my radar for a few years. Regardless of its spectacular potential, the corporate has been flying underneath the radar. With an upswing in provide chain investments, Zebra is poised to learn from the secular pattern that’s nonetheless in its infancy. As extra provide chain firms are anticipated to spend money on expertise, Zebra’s broad vary of merchandise places it in an advantageous place.

On this article, I’ll delve into these developments and clarify why Zebra is a extremely engaging funding, particularly throughout market downturns that present shopping for alternatives.

So, let’s get to it!

Provide Chains & Excessive-Tech

The opposite day, I learn an fascinating article that highlighted the largest provide chain considerations and strategies to enhance provide chains.

Based mostly on a Deloitte survey, the article talked about that 74% of two,000 respondents plan to spice up their expertise investments in 2023. 90% of those firms will spend 24% greater than within the prior 12 months. For sure, that is an enormous development fee in an financial system with a excessive recession chance.

The most important expertise adoption is ready to happen in stock and community optimization. In that section, 87% of respondents anticipate to dramatically ramp up spending within the subsequent 5 years.

This section was adopted by excessive anticipated development in cloud computing, sensors & automated identification, superior analytics, and wearable & cell applied sciences.

Moreover, 87% of respondents imagine that by 2027, provide chains shall be autonomous, related, and clever, making it the norm. Solely 5% of respondents imagine the business has reached that degree at present.

The survey additionally revealed that within the subsequent ten years, digital provide chains are set to change into the norm. These digital provide chains shall be outfitted with end-to-end networks that present transparency in any respect ranges of planning and execution.

The report predicts that firms which have invested in digital transformation will see elevated pace, connectivity, and transparency. They can even profit from correct, shareable, safe, and actionable information. This future will revolutionize the availability chain business, and corporations that embrace these adjustments will reap important rewards.

In different phrases, this report highlighted the great pace at which provide chains are primarily implementing the Web of Issues method, which implies that the whole lot is related, permitting for a lot greater efficiencies.

Corporations that may implement these applied sciences efficiently will thrive. Others that fail to maintain up with these applied sciences are set to battle and lose market share.

Therefore, spending on these applied sciences is thru the roof, as loads is at stake.

That is the place Zebra Applied sciences is available in.

Why ZBRA Is A Nice Provide Chain Tech Play

Basically, Zebra Applied sciences is a expertise firm that makes a speciality of offering merchandise and options for enterprise asset intelligence and provide chain administration. The corporate is headquartered in Illinois, United States, and operates in over 100 nations. Zebra’s merchandise embody cell computer systems, barcode scanners, printers, RFID readers, and software program purposes for information evaluation and administration.

On its company web site, the corporate highlights its capabilities to modernize provide chains.

• Growing visibility to enhance decision-making.
• Powering the Web of Issues ecosystem.
• Enhancing information insights.

In line with its 4Q22 earnings name, the corporate is making progress in elevating its strategic relationship with clients and lengthening its management place in core enterprise whereas gaining traction in development markets. The corporate has complete RFID options providing for a variety of use instances and was simply awarded a report RFID win. Zebra can also be gaining market share in rugged tablets on account of its centered funding. The corporate believes it’s properly positioned to ship 5% to 7% natural development over a cycle, with an more and more engaging margin profile.

Furthermore, the corporate addressed a variety of workflows and use instances throughout numerous markets, reminiscent of retail and e-commerce, transportation logistics, manufacturing, well being care, and different markets. The corporate sees an amazing alternative to proceed to raise and develop buyer relationships by way of its expanded options choices, together with autonomous cell robotic and machine imaginative and prescient wins in manufacturing and warehouse use instances.

CEO Anders Gustafsson highlighted new wins and the great worth ZBRA brings to the desk in relation to serving its purchasers:

We secured numerous thrilling wins, serving to to drive a robust year-end and momentum into 2023. These wins included a big postal buyer in Asia who expects to enhance productiveness and effectivity by equipping 70,000 mail carriers with our cell computing options. A British grocer expects to enhance their shopper expertise and drive retailer efficiencies by deploying 80,000 private shopper gadgets. And the European-based auto producer plans to allow course of enchancment and high quality assurance alongside all phases of the manufacturing line with 30,000 Zebra cell computer systems.

Based mostly on this context, it is truthful to imagine that Zebra is delivering the correct merchandise which might be set to learn from a fast increase in expertise spending.

What About The Valuation?

When discussing development shares that profit from secular development traits, it usually occurs that we’re coping with money-losing enterprises that have not had their main breakthrough. This doesn’t apply to Zebra inventory, which has been persistently worthwhile since 2018. The identical goes for its free money circulation.

In its most up-to-date quarter (4Q22), the corporate generated 3.9% natural web gross sales development, boosted by 11% development in North America and seven% development in Latin America. Roughly 50% of its revenues are generated in North America.

The Asset Intelligence and Monitoring section led the expansion with a 13.5% enhance, pushed by double-digit development in printing. The Enterprise Visibility and Mobility section gross sales remained flat, with various efficiency throughout completely different choices. Knowledge seize options, together with RFID and rugged tablets, confirmed robust development, whereas cell computing gross sales declined primarily as a consequence of difficult prior-year comparisons in EMEA. The corporate additionally noticed development in providers and software program, with robust service connect charges.

This 12 months, the corporate is anticipated to develop EBITDA by 3.8% to $1.3 billion. Subsequent 12 months, development is anticipated to be $1.4 billion. Free money circulation is anticipated to come back in at $690 million this 12 months earlier than it’s forecasted to rise to $930 million in 2024. This suggests a 4.6% 2023E free money circulation yield.

These development charges embody the 2022 acquisition of Matrox Imaging. This $880 million deal provides superior {hardware} merchandise and interoperable software program capabilities.

Internet debt is anticipated to fall to $890 million subsequent 12 months, which implied a net-leverage ratio of lower than 1.0x EBITDA.

Utilizing 2023 EBITDA and web debt numbers, the corporate is buying and selling at 12.5x EBITDA. Utilizing 2024 numbers, that quantity falls to 11.2x.

Given the corporate’s historic valuation of 14x EBITDA, which I imagine is truthful, I estimate the corporate’s truthful worth to be between $360 and $370. This suggests roughly 30% potential for capital features within the subsequent 1-2 years. Until the financial system falls off a cliff, that is my conservative estimate. The present consensus estimate is $360, so I am not far off.

Takeaway

On this article, we mentioned some of the fascinating firms in relation to provide chain optimization. World provide chains have gotten more and more high-tech as investments in next-gen applied sciences are exploding. One firm that advantages from that is Zebra Applied sciences. It has publicity in all the correct areas to assist firms obtain their effectivity targets.

Zebra is quickly profitable new orders. It’s serving to its purchasers obtain their targets and quickly rising each EBITDA and free money circulation. In contrast to some startups, ZBRA has change into the right combine between development and worth, which comes with a sexy valuation.

Whereas market woes and financial weak point would possibly maintain a lid on the inventory for some time, I imagine ZBRA shares are roughly 30% undervalued.