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Soaring profits, increasing R&D, and lots of cash make this “new” old company attractive, says Pat McKeough of TSI Network.

Motorola Solutions (MSI) makes specialized electronic equipment, such as bar-code scanners and radios for police and fire vehicles.

It gets 69% of its revenue by selling its products to governments. The US government is the company’s largest single customer, accounting for 7% of its overall revenue. Businesses supply the remaining 31% of Motorola Solutions’ revenue.
 
The company took its current form on January 4, 2011. That’s when Motorola spun off its struggling cell phone business, Motorola Mobility, as a separate company. Following the transaction, the remaining operations became Motorola Solutions.
 
If you assume the breakup took effect at the start of 2010, Motorola Solutions’ revenue rose 14.2%, from $7.6 billion in 2010 to $8.7 billion in 2012. Earnings soared 259.8%, from $244 million in 2010 to $878 million in 2012.

Due to fewer shares outstanding, earnings per share rose at a faster pace of 309.7%, from $0.72 to $2.95. If you disregard costs related to the breakup and other unusual items, earnings per share would have risen 22.6%, from $2.61 in 2011 to $3.20 in 2012.
 
Motorola Solutions spent $1.1 billion (or 12.4% of its revenue) on research in 2012. That’s up 3.9% from $1.0 billion (or 12.6% of revenue) in 2011. The company is particularly interested in developing new products for long-term evolution (LTE) wireless networks, which are up to five times faster than those in use today.

For one, the US government is spending $7.5 billion to build a national LTE network for first responders. Motorola Solutions will probably win several contracts related to this project, starting in 2013.
 
The company is also using acquisitions to enhance its technology. For example, in 2012 it paid $200 million for Psion, a UK-based company that specializes in handheld computers and other mobile devices that are used in harsh environments. This purchase should begin contributing to Motorola Solutions’ earnings in 2014.
 
The company’s strong balance sheet will let it keep investing in new growth initiatives. At the end of 2012, it held cash of $3.6 billion, or $13.05 a share. Its long-term debt was just $1.9 billion.
 
Ballooning government deficits could slow spending on new communications gear. Still, Motorola Solutions expects its revenue to rise 5% to 5.5% this year. That should push up its earnings to $3.36 in 2013. The stock trades at a reasonable 18.2 times that estimate.
 
The company’s per-share earnings will also continue to benefit from its aggressive share repurchase plan. Motorola Solutions has $1.5 billion remaining on its current authorization. There is no expiry date for these buybacks. The company also has plenty of room to increase its dividend. The current annual rate of $1.04 yields 1.7%.
 
Motorola Solutions is a buy.

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