Summary
Zebra (“ZBRA”) is the leader in enterprise data capture through its barcode printers, scanners, and handheld readers. The Company maintains a strong market share and its ability to adapt allows them to continue to be competitive.
ZBRA has nearly doubled over the past year, as it capitalized on a backlog of demand. With strong profitability, margin improvement, and 25% organic net sales growth last quarter, ZBRA is well poised for long-term growth in 2021 and beyond.
ZBBRA is recognized for its barcoding equipment, which dominate the market. But the majority of the Company’s revenue, operating profits and growth are coming from its enterprise mobility business.
Recent Q1 2021 Highlights:
- Net sales of $1,347 million; year-over-year increase of 28.0%
- Net income of $228 million and net income per diluted share of $4.22, year-over-year increases of 156.2% and 155.8%, respectively
- Non-GAAP diluted EPS increases 79.4% year-over-year to $4.79
- Adjusted EBITDA increases 69.7% year-over-year to $341 million
Company Overview
ZBRA was founded in 1969 and is headquartered in Illinois. The communications equipment company is a well-managed provider of various next-gen productivity scanners, printers and mobile computers. And it is significantly benefitting from the accelerated e-commerce trend coming out of the pandemic.
The Company operates two business segments: Enterprise Visibility & Mobility, and Asset Intelligence and Tracking.
ZBRA’s enterprise mobility business offers data capture solutions to optimize industry workflow. This segment has become critical as companies continue to make numerous moves to fix operational challenges that they experienced during the pandemic.

ZBRA offers products to optimize efficiency in various industries. The Company produces hardware, including: printers, mobile tables, and temperature monitoring hardware. ZBRA also produces software that focuses on data analytics to maximize business efficiency. The integration of both hardware and software into their customers’ operations makes the Company’s products sticky.

Source: Zebra.com
ZBRA has a track record of adaptation and innovation. The Company has proven to be prudent in its acquisitions and M&A contributions continue to remain part of the longer-term growth story. ZBRA acquired Reflexis, a privately held company, which provides workforce management software, in September 2020 for $575 million. The acquisition bolstered the Company’s footprint in retail, food service, hospitality and banking. ZBRA acquired Fetch Robotics for $305 million in 2021. Fetch is a workflow automation specialist that will help ZBRA further expand its solutions for modernizing manufacturing and fulfillment, as customers continue to move online. the company is positioned to acquire according to its three categories – Core Portfolio, Adjacencies, and Vision Acceleration.
Leadership
Anders Gustafsson became CEO of Zebra Technologies in 2007. Prior to joining Zebra, Mr. Gustafsson served as CEO of Spirent Communications where he redirected that company’s growth strategy, divested non-core operations, integrated historic acquisitions and streamlined the organization. Prior to that, he was a senior executive at Tellabs, Inc. Earlier in his career, he held executive positions with Motorola and Network Equipment Technologies. Gustafsson holds a master’s degree in business administration from the Harvard Graduate School of Business and a master of science degree in electrical engineering from Chalmers University of Technology in Gothenburg, Sweden. He was a Fulbright Scholar and received numerous fellowships and scholarships for academic excellence.
Here’s a link to how Covid-19 has changed buying behaviors, according to Gustafsson:https://www.cnbc.com/video/2021/05/04/barcode-company-zebra-tech-ceo-on-how-covid-19-changed-buying-habits.html

Market
ZBRA’s customers are in e-commerce, transportation, logistics, manufacturing, healthcare, hospitality, warehousing, and distribution. The Company’s products are geared squarely at improving productivity and efficiency within omnichannel operations. The Company optimizes workflows. ZBRA has more than 10,000 partners across 100 countries. Macro trends supporting the business have accelerated due to the pandemic. E-commerce sales are set to double between 2019 and 2024 with a 100% expected increase in global parcel shipping volume by 2026.

ZBRA will benefit from an expanding global economy coming out of the pandemic, as well as secular growth in warehousing, e-commerce and transportation.
During the Q1 2021 Q&A management remarked that, from a vertical perspective, healthcare has been its fastest growing segment. According to Anders Gustafsson, CEO, “It’s been our fastest growing vertical for some time and we expect it to continue to be the fastest growing one. It had a very nice performance in Q1. I think the transformation in healthcare is accelerating. It started off in acute care, but it’s moving into other areas now, like ambulatory care, contact tracing, even remote patient care. And healthcare patients are now expecting or demanding a more digital experience and they prefer that also. And our purpose-built solutions are critical for healthcare providers to be able to improve the overall patient journey to drive – and to drive greater productivity for the healthcare providers across their operations.”
Risks
ZBRA, like many companies at this time, is dealing with supply chain issues across two categories: 1) logistical bottlenecks and 2) industry-wide semiconductor shortages. The logistical bottlenecks are causing the Company to incur premium freight costs, which are a drag on revenues. And as per semiconductors, ZBRA continues to see modest increases in surcharges related to sourcing components.
The Company exhibits excellent profitability and momentum, but does not earn high marks from value-oriented investors. The biggest risk The Investor Weekly sees is the stock is currently trading at a serious premium to EBITDA and Earnings.



Financials and Valuation
ZBRA Q1 2021 earnings were strong. Total Revenue was up more than 20%, and organic revenue growth was 25% year-over-year. Both segments of the business saw double digit growth in top line growth.
Source: https://investors.zebra.com/overview/default.aspx
Gross Profit margins in the first quarter were almost 49%, and increase of 370bps year-over-year. About two-thirds of that is related to business mix, as well as volume leverage, according to the earnings call. The Company experienced a high mix of large orders, due to the recovery of small and medium businesses. And about a third of that was from expansion of ZBRA’s service margins, as well as the Reflexis acquisition.
The Company reported a 70% increase in EBITDA to $341 million. The adjusted EBITDA margin rose to 25.3%. EBITDA is expected to grow to $1.3 billion in 2022E.

Free Cash Flow was $214 million for the quarter on higher net income. The Company expects to report greater than $850 million in FCF for FY2021E.
The Company invested $13 million this quarter in venture investments.
Source: https://investors.zebra.com/overview/default.aspx
The Company maintains a strong liquidity position with $177 million in cash and an additional $1 billion capacity on an undrawn revolver.
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Source: https://investors.zebra.com/overview/default.aspx

It should be noted that ZBRA carries a high debt load compared to some of its peers. However, the Company continues to pay down debt with strong aforementioned FCF. In Q1 the Company paid down $156 million in debt. Net Debt to Adjusted EBITDA is 0.9x. 2021 Net Debt is expected to fall to roughly $440 million.
For Q2, management expects adjusted net sales to increase ~40% from the second quarter of 2020 as the global economy continues to recover. This expectation includes an approximately 450-500 basis point impact from the Reflexis acquisition.
Non-GAAP earnings per diluted share are expected to be in the range of $4.00 to $4.20.
For 2021E, the Company expects adjusted net sales to increase ~22% from 2020, which includes an approximately 3 percentage point additive impact from the Reflexis acquisition and foreign currency translation, and reflects industry supply chain challenges. And Adjusted EBITDA margin is now expected to be approximately 22% to 23%. Free cash flow is expected to be greater than $850 million.
Peer Comparison (Source: Seeking Alpha Premium)ZBRA is considered best-of-breed when it comes to price performance and total return.
You could also add OLED, SYNA and ALOT as potential peers.
The Investor Weekly is also bullish on Trimble (“TRMB”) and Synaptics (“SYNA”).
ZBRA Investment Strategy
The Investor Weekly has been bullish on ZBRA since 2019. At this time, the Company was much smaller and the stock was trading at $200 dollars. We began building a position after the stock doubled from the low $100s in 2018. Fast forward two years to July 2021, and ZBRA is trading at ~45x earnings and ~30x EBITDA. ZBRA is richly priced today. We therefore recommend buying on dips and pullbacks. ZBRA had a big runup in February this year. And this was really the last time the stock traded below $450.00.
We continue to build a position in the stock at below $500.00 and we still believe this is a long-term hold.
The business continues to be supported by strong secular trends that have accelerated during the pandemic, like omnichannel. The majority of companies today are focused on automating and digitizing their businesses. This continues to result in double-digit growth across all regions, across all products and solutions, as well as all verticals, for ZBRA.
ZBRA – YTD Daily Price and 1 Year Daily Price


The Company is expected to report earnings on August 3, 2021. In terms of top and bottom-line numbers, the company has posted rising EPS growth in each of the last three quarters. Top line growth has also moved higher over the last three periods.
Analyst expect earnings-per-share growth of 70% for the quarter, and 33% growth for the full year. Annual growth estimates were recently revised higher.
We are optimistic that the Company issues either a dividend or a stock buyback program in the coming 24 months.
References
Investor’s Business Daily: https://research.investors.com/stock-checkup/nasdaq-zebra-technologies-corp-zbra.aspx
Motley Fool Premium: https://www.fool.com/premium/company/NASDAQ/ZBRA/
Seeking Alpha Premium: https://seekingalpha.com/symbol/ZBRA
ZEBRA Technology Corporate Site: https://www.zebra.com/us/en.html
https://www.businesswire.com/news/home/20210701005144/en/Zebra-Technologies-to-Acquire-Fetch-Robotics
https://www.zebra.com/us/en/about-zebra/newsroom/press-releases/2020/zebra-technologies-completes-acquisition-reflexis-systems-inc.htmlhttps://www.crunchbase.com/search/acquisitions/field/organizations/num_acquisitions/zebra-technologies
Disclosure
I am/we are long Zebra Technologies (“ZBRA”) either through stock ownership, options, or other derivatives.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Nothing on this site nor any published commentary by The Investor Weekly is intended to be investment, tax, or legal advice or an offer to buy or sell securities. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and should not be considered a complete discussion of all factors and risks. Data quoted represents past performance, which is no guarantee of future results. Investing involves risk. Loss of principal is possible. Please consult with your investment, tax, or legal adviser regarding your individual circumstances before investing.