Two cents. Who would have imagined a day when investors in high-tech juggernaut Motorola (NYSE:MOT) would be cheered by the fact that their company earned a pathetic pair of pennies? And yet, that's been enough to meet estimates once and beat estimates once in the last two quarters -- but it won't cut muster when Motorola reports its third-quarter numbers on Thursday.

What analysts say:

  • Buy, sell, or waffle? Thirty-six analysts follow Motorola, with 15 giving the stock a buy rating, 19 more a hold, and four saying sell.
  • Revenue. On average, these analysts expect to see sales slide 17% to $8.81 billion.
  • Earnings. Twice the profits will be needed to please them this time: $0.04 per share.

What management says:
Motorola's Q2 report back in July drew negative comparisons to rivals Nokia (NYSE:NOK), Apple (NASDAQ:AAPL), and Research In Motion (NASDAQ:RIMM) from my Foolish colleague Anders Bylund. And judging from the update that Motorola released earlier this month, this week's news may engender another round of criticism.

In an effort to achieve "long-term, sustainable profitability," Motorola announced that its "cost-reduction initiatives, including planned workforce reductions," had cost the firm $221 million (and 4,100 jobs) so far this year. The impact on Thursday's report will be $122 million in charges to pre-tax income.

What management does:
Thus, we may well see a continuation of the trends reflected in the chart below: declining gross margins, followed by even steeper declines in operating and net margins. Motorola has already overtaken laggard consumer electronics rivals Matsushita (NYSE:MC) and Philips (NYSE:PHG), and is closing in rapidly on Sony (NYSE:SNE) in a race downstairs to the cellar of profitability.

Margins

4/06

7/06

9/06

12/06

3/07

6/07

Gross

31.9%

31.5%

31.3%

29.8%

28.7%

28.0%

Operating

11.6%

11.3%

10.9%

9.7%

7.4%

4.9%

Net

12.3%

12.7%

10.3%

8.5%

6.5%

3.4%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
So why does more than one analyst in three still recommend that you buy this stock? That's the real question. Valuation-wise, there doesn't seem to be much argument at all in Motorola's favor. Motorola currently trades at a P/E of around 34 and an only slightly more reasonable 29 times trailing free cash flow.

By either measure, the fact that most analysts agree Motorola will only grow its profits at about 8% per year over the next half-decade tells me this stock is grossly overpriced. Unless Motorola gives some promise of an imminent turnaround in Thursday's news, I don't see my opinion on this point changing anytime soon.

What's Motorola done for us lately? Find out in:

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.