We have established a position in Motorola Solutions (NYSE:MSI). First, we need to point out that this is not the old Motorola mobile handset business. The Company spun that business off into a separate company in 2011 and sold it in 2012. This potential confusion is an important point, as we believe this company has flown under many investors’ radars due to MSI’s former ties to the mobile phone business.
This new Motorola, known as Motorola Solutions, is the world’s leading provider of highly secure and reliable communication networks, products, and services for use in global police and emergency services, a variety of government and military applications, and other commercial and public safety applications where security and reliability are of the utmost importance. This business is known as Land Mobile Radio (LMR) and involves building the infrastructure for customized, secure networks for their customers, providing handsets and other devices, and layering in a variety of software and services.
The nature of their business and the nature of their customer base make this a very steady, somewhat non-cyclical business. For example, a municipal police force will not turn off its first -responder communications network in a recession, and it will need to maintain the network, at least. To be fair, though, such a customer might choose to delay upgrades or additions of ancillary services if the municipal budget is under some constraint.
Between the expansion of its installed base of network/handset customers, and its ability to sell new software/services/analytics into this installed base, we see Motorola as a consistent high single-digit percentage revenue grower, and at least low double-digit percentage profit grower over the next several years – all with relatively less economic sensitivity than most technology companies. We expect organic revenue growth to account for roughly 4-6% of the revenue growth, with regular acquisitions rounding out the rest of the expected growth.
Valuation is very attractive considering this steady growth profile, and we see an opportunity for valuation to expand. Additionally, we believe the stock has been under the radar of most investors, with many investors still thinking the Company is a broken mobile phone business. We believe investors’ knowledge of the company, estimates of the company’s earnings potential, and valuation multiples all have the opportunity to expand over the next few years.
From David Rolfe (Trades, Portfolio)'s second-quarter 2019 Wedgewood Partners letter.
