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Why Zebra Technologies Stock Soared in May

By Lee Samaha - Jun 7, 2020 at 12:44PM

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The market has a brighter outlook on the potential for Zebra Technologies to grow earnings in the future.

What happened

Shares in data management company Zebra Technologies (ZBRA -4.08%) surged 13.8% in May, according to data provided by S&P Global Market Intelligence. The move comes down to a combination of a relatively positive earnings report released at the end of April, and the market taking a relatively brighter outlook on global economic growth prospects.

In addition, Zebra may have benefited from a growing recognition that the COVID-19 pandemic will encourage companies to invest in automation solutions. As such, Zebra can benefit because its handheld barcode scanners, mobile computers, and printers help gather and analyze data in end markets as diverse as retail/e-commerce logistics, transportation, manufacturing, and healthcare.

That said, the industrial company missed is first quarter sales and earnings outlook and withdrew its full-year outlook due to the uncertainty created by the pandemic. Moreover, the one bit of guidance given on the earnings release was for "net sales, adjusted EBITDA margin, and free cash flow to be lower than last year." 

A handheld scanner being used in a warehouse.

The COVID-19 pandemic could spur demand for data management tools. Image source: Getty Images.

Moreover, sales were also affected by supply chain disruptions occurring as a result of the factory shutdowns caused by COVID-19. All told, net sales declined 1.3% in the first quarter, and management expects an 11% to 17% decline in the second quarter as well.

So what

Now that the market has gotten used to the idea that the second quarter will be horrific, investors can start to look ahead into a recovery. On a cautionary note, it's going to take time and there are question marks over the pace of recovery in the retail sector -- a key end market for Zebra.

On the other hand, Zebra had good sales momentum going into 2020 with sales rising 6.3% in 2019, even as it dealt with supply chain issues sourcing product from China in the light of the trade conflict.

Now what

Investors will be hoping that the global recovery takes place, helping to boost end demand. In addition, the plan to shift sourcing products away from China will remove another headwind, and it's possible the COVID-19 pandemic will accelerate adoption of automation solutions that play to Zebra's strengths.

All told, 2020 will be a year of decline for Zebra, but it may prove to be a multi-year trough for a very interesting growth company. Keep an eye on Zebra Technologies. 

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Zebra Technologies. The Motley Fool has a disclosure policy.

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