5 Megatrends Driving Zebra Stock Growth

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Ininvestors see considerable opportunities for Zebra Technologies (NASDAQ: ZBRA). In this clip from “3 Minute Stocks Updates” on Motley Fool Live, recorded on February 16Motley Fool contributors Brian Withers and Toby Bordelon explain why investors should be excited about the future of Zebra and its $30 billion addressable market.

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Brian Wither: Let’s go to Zebra, ZBRA. I’m not going to redo the quarterly highlights. There are short term headwinds with costs and supply chain issues, but I think the company is super well prepared for the long term. There’s a slide he showed in the most recent earnings results that talks about the market he’s in and the opportunities ahead. I want to share this slide because I think it’s really positive for investors. There’s a lot going on here. The main business in the bottom left, lightest blue is enterprise mobile computing, data capture, thermal printing, etc., a market capitalization of $10-12 billion. This is the main market in which the company is located today. Zebra printers, the things that read them, the units that help you manage your inventory in your retail establishment, hospital, or manufacturing business, that thrive for the long haul. This increases at a long-term growth rate of approximately 4-5%. In the next one, the one in the middle, we’re talking about smart supplies, RFID tablets. These are existing products that it has on the market. He was talking about having a single-digit percentage of revenue. These adjacencies represent only a small part of the income. This market is even larger than the main market and is growing in single digits. It’s smaller and it grows faster. The final piece, the extension here, talks about machine vision, smart cameras, mobile robots, retail, and demand planning software. It’s a bit smaller, a market cap of $6 billion, but it’s growing by $6 billion and it’s in that market too. This revenue share is really not even measurable today. This is less than 1% of the company’s total turnover. If you look at megatrends in the top right corner, cloud computing, intelligent automation, I would also add that labor shortages are really one of the things that will propel Zebra into the future, making so that its customers and employees are much more capable and able to do more with less. Really excited about the future of Zebra in its $30 billion addressable market.

Toby Bordelon: There are definitely a lot of opportunities there. You have RFID. You have artificial vision. You have smart cameras. You have all kinds of things. Many of them are arguably disruptors of that original barcode core business on which they built their reputation, almost the classic innovator’s dilemma. Do you feel like management is ready to pursue these opportunities, even if it may mean that the company they are famous for is ultimately meaningless?

Withers: Yes, this is something investors should definitely watch out for. I think they are super serious about it. Let me share a few slides explaining why I think so. They got AI, robots, machine vision, computer vision, prescriptive analytics, and temperature monitoring. There’s a lot going on there. They put their money where they say. They buy this stuff. You asked a question specifically about RFID. They already have a family of RFID products. You can see their printers. As labels are printed, RFID tags are integrated. You can see the labels and supplies, they are embedded in the labels. They also have scanners, antennas, etc. and a full suite of RFID products. You mentioned artificial vision. This stuff is really cool. You can see the robot or whatever in the middle of the store aisle there. There’s a bunch of cameras facing right and he’s scanning the shelf, and what does he do? It looks for things that are misplaced, things that are mispriced, potentially inventory that is messed up or out of stock. What he does is walk the aisles of the retail industry and provide a set of tasks for employees to walk in, fix, and address. When they correct them, they can click that they are done. Rather than having employees do the mundane job of walking down each aisle and processing things as they come, it takes that dull, boring activity and makes it much more efficient for their employees.

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Brian Withers has no position in the stocks mentioned. Toby Bordelon has no position in the stocks mentioned. The Motley Fool owns and recommends Zebra Technologies. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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