The Spinoff Is Paying off for Motorola

Focus: STOCKS

Patrick McKeough Image Patrick McKeough Editor, Successful Investor

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.