Top Picks 2020: Zebra Technologies (ZBRA)

01/24/2020 5:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Zebra Technologies (ZBRA) was our Top Pick in 2019, and the stock has risen over 60% since that recommendation. We are once again choosing the stock as a favorite for the new year, explains Richard Moroney, editor of Dow Theory Forecasts.

Zebra is named after the stripes on its bar codes, makes scanners, printers, and labels used by retailer. Transportation, healthcare, and manufacturing companies also employ Zebra products to track their assets, such as equipment and inventory moving through the supply chain.

Facing the prospect of annual tariff costs topping $100 million, Zebra has been diversifying its product sourcing away from China. Management expects tariffrelated costs to reach $15 million to $25 million in the March quarter before dissipating in the second half of 2020.

Despite the trade headwinds, a favorable product mix has helped Zebra expand its operating profit margin, with per-share profi ts climbing 22% on revenue growth of 8% for the 12 months ended September.

Encouragingly, analysts have steadily become more bullish on Zebra’s 2020 outlook over the past 90 days. The consensus now forecasts per-share profits of $14.09 next year, implying 8% growth, on 6% higher revenue.

At 18 times estimated 2020 profits, the stock trades below a median of 21 for electronic-equipment stocks in the S&P 1500 Index. Zebra isis rated as buy on our Focus List of top recommendations.

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