Will Top-Line Contraction Hurt Motorola's (MSI) Q3 Earnings?

Motorola Solutions, Inc. MSI is scheduled to report third-quarter 2020 results after the closing bell on Oct 29. In the last reported quarter, the company delivered a positive earnings surprise of 15.8%, surpassing the Zacks Consensus Estimate by 19 cents. In the third quarter, the company is likely to have generated lower consolidated revenues on a year-over-year basis due to the coronavirus-induced turmoil.

Factors at Play

During the third quarter, Motorola launched the WAVE PTX solution, which is considered the perfect solution for on-the-go workforce that enables employees to experience the perks of push-to-talk workgroup communications with best-in-class network capabilities without the need of expensive infrastructure expansion. In addition, Motorola unveiled CirrusCentral Core, a cloud-based secondary core for ASTRO 25 P25 land mobile radio systems, which enables system managers to access their secondary core virtually and eliminates the need for public safety agencies to maintain a physical backup core-site.

Also, in the quarter, the company offered 12,000 VB400 body-worn cameras along with VideoManager software to the central unit of police in Romania to enhance the safety of police and public across the country. It also offered VT100 body-worn cameras to Co-op, U.K.’s largest consumer co-operative, to thwart in-store crimes, provide real-time footage of incidents and protect frontline employees. Such innovative product launches and system deployments are likely to have translated into incremental revenues for the Products & Systems Integration segment.

The Services and Software segment has been another area of significant focus. The company deployed its avant-garde and integrated cloud-based control room system to benefit U.K.’s Bedfordshire Fire and Rescue Service with fully reliable end-to-end workflow and streamlined processes. The collaboration will likely enhance the public safety communications infrastructure with enhanced operational efficiency and safety, thereby strengthening Motorola’s position in the global domain. However, a tough year-over-year comparison due to challenging macroeconomic conditions stemming from the virus outbreak is likely to have negated the software and service launches.

During the quarter, Motorola acquired Callyo — a leading provider of advanced mobile technology for law enforcement purposes — to enhance its mission-critical communications infrastructure, while boosting productivity for seamless operations. This is likely to be reflected in the upcoming results.

Despite healthy demand across land mobile radio products and other devices, driven by a comprehensive suite of services that ensures continuity and reduces risks related to critical communications operations, Motorola is likely to have recorded top-line contraction. The Zacks Consensus Estimate for total revenues in the third quarter is pegged at $1,827 million. In the year-earlier quarter, it generated revenues of $1,994 million. The consensus mark for earnings is currently pegged at $1.76 per share, indicating a decline from $2.04 reported in the year-earlier quarter. During second-quarter 2020 earnings release, management projected third-quarter 2020 non-GAAP earnings in the $1.72-$1.78 per share range on a year-over-year revenue decline of 8-9%.

Earnings Whispers

Our proven model predicts an earnings beat for Motorola this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.91%, with the former being pegged at $1.78 and the latter at $1.76. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Motorola Solutions, Inc. Price and EPS Surprise

Motorola Solutions, Inc. Price and EPS Surprise

Motorola Solutions, Inc. price-eps-surprise | Motorola Solutions, Inc. Quote

Zacks Rank: Motorola currently has a Zacks Rank #3.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:

T-Mobile US, Inc. TMUS is set to release quarterly numbers on Nov 5. It has an Earnings ESP of +23.45% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Lumen Technologies, Inc. LUMN is +9.68% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Nov 4.

The Earnings ESP for Watts Water Technologies, Inc. WTS is +7.51% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Nov 4.

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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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