Shares in Zebra Technologies (ZBRA +3.02%) slumped by 12.3% in the week through Friday morning. There's little doubt over the reason for the move, with the company's guidance on its third-quarter earnings call (released earlier in the week) falling short of expectations. Still, the dip is creating an interesting buying opportunity in the stock.
Zebra's disappointing guidance
There was little wrong with the third-quarter results themselves, and management's headline guidance for fourth-quarter sales growth of 8% to 11% is impressive. Still, as management outlined in the earnings presentation, the guidance includes an 850-basis point (whereby 100 basis points equals 1%) favorable impact from two acquisitions (Elo Touch in September and Photoneo in February) and foreign exchange movements.
NASDAQ: ZBRA
Key Data Points
Backing out these factors leaves a range of a decline of 0.5% to growth of 2.5%. That's far less impressive and reflects a slowing in orders. It also mimics what its chief rival Honeywell's productivity solutions and services (PSS) is seeing. PSS organic sales declined 3% organically in the third quarter, and Honeywell's management referred to "modest demand headwinds" for PSS in the third quarter.
Why Zebra could be a stock worth buying on a dip
The dip in share price means that, at the time of writing, Zebra trades on a price-to-free cash flow (FCF) multiple of 17.1 times estimated FCF for 2025. Moreover, Zebra's sales continue to grow, and the acquired companies are now fully integrated into Zebra. It doesn't make sense to judge Zebra as if they weren't part of the overall business.
Finally, Honeywell is assessing strategic options for PSS, which could result in a divestiture, and that might make competitive conditions easier for Zebra in the future, not least as Honeywell focuses its industrial automation business on other areas.
