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Zebra printer

Alexa Harrison/MEDILL

Zebra manufactures bar code label printers, like this LP 2844, used for shipping and tracking inventory.


Zebra Technologies poised to grow with the global economic recovery

by Alexa Harrison
Feb 25, 2010


Zebra Revenue chart

Alexa Harrison/MEDILL

Zebra's revenue dipped in mid-2009 as it was affected by the slump in the economy, but has steadily increased since mid-year. Click image to enlarge.

Zebra Technologies Corp. entered 2010 in a strong position after posting better-than-expected results in the fourth quarter. Analysts agree the bar-code company will continue to benefit from its aggressive outsourcing to China and restructuring. But the real key to Zebra's year, the analysts say, is the pace of the economic recovery worldwide.

Jay Meier, an analyst with Feltl & Co. Inc. in Minneapolis, said that as the global economy strengthens, Zebra will as well because of the many industries its business reaches.

“[Zebra’s] business is really going to ebb and flow with the global economy,” Meier said. “They’re going to grow as fast as the economy is and a little more. . . Zebra is the preeminent provider of bar code labeling infrastructure on the planet. Zebra is the stuff that makes bar codes work.”

Analyst Michael Holt of Morningstar Inc. agreed: “as we see the global economy sort of emerge from the downturn, you [will] see a lot more goods being shipped around.”

The Lincolnshire, Ill.-based company receives about 90 percent of its revenue from its Specialty Printing Group segment, which manufactures thermal printers that produce items like bar code labels and hospital wristbands. Companies like United Parcel Service Inc. use the printers and labels for shipping, tracking inventory and in the case of hospitals, to keep pertinent health information with the patient to ensure accuracy.

Zebra began outsourcing the company’s manufacturing to Jabil Circuit Inc.’s China facility some time ago, although Jabil Circuit is headquartered in St. Petersburg, Fla. Jabil Circuit, whose net sales were $11.7 billion in 2009, describes itself as an electronic product solutions company that provides manufacturing and product management services.

Outsourcing to China has helped lower Zebra’s operating costs, including labor. According to Great Lakes Review, a division of Soleil Securities Group Inc. based in Cleveland, less than 5 percent of Zebra’s products are still manufactured within the U.S. By the end of 2010, Jabil Circuit will perform all of the printer assembly operations.

Brian Drab, an analyst at Chicago-based William Blair & Co. LLC, said in a research note, “While the company should benefit from margin expansion in 2010 as a result of its recent major outsourcing initiative, we believe the benefits are already largely priced into the stock.” William Blair is a market maker in the security and expects to receive compensation from Zebra for various services.

In fact, the average target price of six analysts surveyed by Bloomberg LP is only $30.67, barely above the current market of about $29, just shy of its 52-week high. The low was $16.40 last March. Zebra’s price-to-earnings ratio as of Feb. 24 is a robust 36, but still lower than the 43 of competitor Astro-Med Inc.

Despite their modest expectations for the stock, the analysts' consensus estimates of Zebra's earnings as compiled by Bloomberg represent sharp improvements from the 79 cents per diluted share earned last year, up to $1.40 per diluted share in 2010 and $1.68 in 2011.

Zebra’s sales last year decreased 17 percent to $803.6 million from $976.7 million in 2008. But the company turned a profit of $68.8 million in 2009, compared with a loss of $15.3 million in 2008 because of an impairment charge of $157.6 million regarding the company's radio frequency identification business, or RFID. 

Zebra’s foremost competitor is Intermec Inc., which reported net revenue of $890.9 million in 2008.

Great Lakes Review declared in research note, “Zebra is benefiting from a more diversified business base across various verticals (including healthcare and government—which are less than 30 percent of the business—applications include patient wristbands and e-citations), with new, higher-end products anticipated to benefit both the top-line as well as margins going forward.”

The note also stated that Zebra benefitted from sales of its HC-100 wristband printer to the healthcare sector in the United Kingdom, while sales in central Europe and Spain also showed growth. The European, Middle Eastern and Asian regions made up 37 percent of Zebra’s revenues in the fourth quarter, behind North America at 44 percent.

“Healthcare and government are main roles for them right now but those areas seem to be changing and that’s indicative of a broader shift in technology that should benefit Zebra and other companies over time,” said Meier of Feltl & Co.

Part of Zebra’s 2010 strategy, CEO Anders Gustafsson said in the fourth quarter earnings call, is to hire upwards of 40 new sales personnel abroad focusing on Asia, Turkey and Brazil. The company also plans to establish itself in as many as five Asian cities and one new city in Brazil. 

“It’s not surprising that they’re focusing on those areas,” said Holt of Morningstar. “Obviously the emerging markets seem to be coming out of the recession more rapidly and to have the ability to sustain a higher growth rate in the short run.”

Zebra Enterprise Solutions, or ZES, which produces RFID tags for tracking inventory via radio waves, provides the other 10 percent of revenues. The segment has been bleeding money as far back as 2007.

Analysts said the ZES segment is an amalgamation of several acquired companies. According to Meier and Holt, Zebra expected RFID to take off much earlier than it has and only large entities like Wal-Mart Stores Inc. and the Department of Defense actively utilize and prefer RFID tag systems. But Zebra gives no indication that it's giving up on its RFID business.