Goldman Upgrades Motorola Solutions To Buy, Sees 25% Upside

"We have seen a meaningful and positive shift in strategy, marked by a renewed focus on revenue growth with prudent opex management rather than the largely buyback/cost cut-driven EPS growth seen over the past few years," analyst Matthew Cabral wrote in a note.

Airwave Acquisition

Cabral noted that the recent acquisition of Airwave would help Motorola to diversify its revenue to managed and support services from the current network infrastructure and devices. Further, the long-term nature of managed services contract ensures a steady stream of revenue.

Airwave delivers voice and data communications to more than 300 emergency and public service agencies in Great Britain, including police, fire, rescue and ambulance services.

Related Link: Motorola Solutions Gets A Neutral Rating From Citi

In February, Motorola Solutions completed acquisition of Airwave for about £700 million (approximately $1 billion) in cash. In addition, a deferred cash payment of £64 million (about $90 million) will be made in November 2018. Motorola expects the deal will be immediately accretive to its non-GAAP earnings and free cash flow.

Fading Headwinds

More near term, the analyst expects the headwinds from both Norway and Latin America to fade, driving a return to core revenue growth in the second half of 2016 and beyond.

"In addition, we expect flat-to-modestly down opex to continue, which should drive significant EPS leverage; consensus is currently modeling opex levels that are too high in our view, which is a key driver of our Street high CY17 EPS forecast," Cabral highlighted.

Cabral cut his CY16/CY17/CY18 non-GAAP EPS estimates to $4.59/$5.23/$5.54, respectively, to account for FX headwinds. However, the revised outlook remains ahead of the Street at $4.51/$4.93/$5.49.

The analyst also raised his price target to $81 from $74. The new target of $81 implies an upside of 25 percent.

"We also believe that current valuation presents a compelling entry point, with the stock at a trough P/E of <14x," Cabral added.

Shares of Motorola Solutions closed Wednesday's trading at $64.55.