Goldman Highlights Zebra As 'An Industry Leader' Within A 'Market In Transition'

Goldman has started coverage of Zebra Technologies Corp. ZBRA with a Neutral rating and $55 price target, saying that despite growth drivers, gross margin weakness is keeping the brokerage on the sidelines.

Justification For Neutral Rating

"We believe that the company is well positioned for the Android transition within the enterprise mobile computing industry and see deleveraging as a key source of 'self-help' ahead. That said, we are concerned by recent GM weakness and see risks from consumer devices in certain use cases," analyst Matthew Cabral wrote in a note.

Cabral also noted that a slowing retail SSS is a near-term headwind for the company, which is still the leading player in the AIDC industry, "with the Enterprise acquisition in 2014 completing the company's portfolio by bringing together two ends of the same solution."

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The analyst believes that the Android transition represents the company's key growth opportunity and expects Android to represent more than 50 percent of mobile computing in CY17, "driving a return to modest revenue growth for the company as a whole."

"We also look towards deleveraging as another important source of EPS expansion, as lower interest payments account for 36 percent/34 percent of our forecasted growth in CY17/CY18," Cabral highlighted.

Concerns And Forward Analysis

However, the analyst is "concerned by the recent Enterprise gross margin pressure amid the Android transition" and sees "the threat of consumer devices in lighter-weight use cases as an incremental source of competition that could weighing on pricing."

Net-net, Cabral sees modest downside to Street estimates ahead as his estimates are 1 percent/3 percent/4 percent below consensus EPS for 2016/2017/2018. The analyst expects EPS of $5.24, $6.08 and $6.58 for 2016/17/18.

"However, we do not believe it will be enough to drive meaningful downside for the stock in the context of estimates that are already down 30 percent over the past year," Cabral noted.

At time of writing, shares of Zebra were down 0.41 percent at $55.99.