Motorola: All Eyes On Next Week’s Guidance
By Tiernan Ray
Motorola Mobility (MMI), the handset part of what was once Motorola, is scheduled to report Q4 earnings a week from today, January 26th, and all eyes will be on the Q1 forecast and what it says about the company’s hit from the Apple (AAPL) iPhone coming to Verizon Communications (VZ).
Tero Kuittinen with MKM Partners today started coverage of the stock with a Buy rating and a $40 price target. He sees Moto’s margins and average selling prices rising as the company “returns to the cutting edge of handset hardware,” setting it up well to compete in tablet computers.
In contrast to hand wringing about the iPhone at Verizon, Kuittinen outlines several strategic and tactical moves that may be running in Moto’s favor. Moto is likely to get “robust” support from AT&T (T) and Verizon at the same time in Q2, for the first time in years, writes Kuittinen. The fact that Apple is leaving dual-core processors and 4G wireless, or “Long Term Evolution” support out of its version of the iPhone for Verizon, is another advantage for Motorola (which is bringing the dual-core Droid Bionic smartphone for 4G to Verizon.)
The Atrix phone, moreover, which is coming to AT&T, may get strong support from the carrier as it tries to use it as a weapon against Verizon’s wielding of the iPhone.
Kuittinen projects $15.5 billion in revenue this year and $1.49 in EPS. That’s way, way above current estimates for $13.4 billion and $1.15, according to the Street.
Meantime, Ittai Kidron with Oppenheimer & Co. this morning raised his price target to $38 from $35, and reiterates an Outperform rating. The higher price target is based on an expectation MMI will sell more devices in total this year — 35.2 million, up from his prior estimate of 33.5 million, mainly through the ramp-up of the Xoom tablet and the Atrix. On that basis, Kidron raised his 2011 EPS estimate to 62 cents from 58 cents, on revenue of $12.58 billion, up from $11.6 billion.
But it all comes down to what CEO Sanjay Jha says about Q1, Kidron notes. Kidron’s modeling Q1 revenue of $2.58 billion and a net loss of 5 cents per share. The Street, by contrast, has been modeling around $2.8 billion, and a penny or two in profit.
Kidron thinks the Street consensus is too rosy and has to come down to match much lower expectations of buy-side investors. He sees Moto handset volume at Verizon dropping in Q1 to 1.4 million units, which would be less than every quarter of last year.
Mark Sue with RBC Capital today writes that the March quarter will probably be Moto’s toughest of the year, no surprise there. He sees units dropping by 8% from Q4, to 9.2 million units, but he thinks the forecast offered next week will be more or less in line with consensus. He also sees the company shipping half a million of the Xoom tablet in Q1, and some possible benefit from the introduction of Atrix. Q2 will see a larger pickup at Verizon thanks to the Bionic and the Xoom. Sue expects that with 4G capability and a dual-core processor, the Xoom “may be a formidable competitor to the market leader, Apple’s iPad.” maintains a Sector Perform rating on Motorola and a $38 price target.
Motorola Mobility shares are up $1.26, or 3.6%, at $36.32.
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