Taking Profits on Motorola

After much gut-wrenching action and analysis, I decided to take profits on Motorola (MOT) after owning it in most client accounts for almost two years. The stock has rebounded from $19 to over $23 since the company reported its excellent second-quarter results and raised guidance. I still think that MOT is back, and the Street is finally giving the stock some respect, but I am concerned that some of the data points indicating a tougher second half for handset sales may prove true. Two colleagues at StreetInsight.com that I really respect, Tero Kuttinen and Bob Faulkner, have discussed this possibility. I suspect that MOT will continue to gain share and any modest handset market weakness won't impact it. In the end, MOT has been a tough stock to own, and now that it has moved up back up to a level more in line with its strong fundamentals, I don't feel I have an edge. Northlake’s ETF-driven strategy only leaves room for a limited number of individual stocks. Conseqeuntely, I try to only own stocks in which I feel I have an edge. That is no longer the case for MOT so it is time take the sizable profit and move on.

Confident Motorola Sharply Increases Share Buyback

Apparently, Motorola (MOT) believes its stock price is too cheap. The company just announced that it will complete its prior $4 billion, three year repurchase plan 2 years ahead of schedule by immediately buying $1.2 billion in shares. Additionally, a new $4.5 billion, 3 year repurchase has been approved by the Board. According to the press release, the new plan represents 9% of current shares outstanding.

MOT has $10.1 billion of net cash on its balance sheet representing cash and equivalents of $14.4 billion and debt of $4.3 billion. Even after the repurchase, the company has plenty of firepower to complete a large acquisition, so by itself the latest announcement won’t eliminate the risk of a major deal.

Look for additional announcements out of MOT today and tomorrow in conjunction with the company’s annual analyst meeting. At the meeting, analysts will be looking for new products and an update on potential margin expansion in the handset business.

Northlake remains long MOT, looking for mid-$20’s price to exit the position.

Motorola Comes Through and the Stock Climbs

Beat and raise. That is what investors have demanded from MOT to reward the stock. Last night's earnings report did the trick. EPS of 34 cents were better than 31 cents expected. Revenues of $10.9 billion were $600 million ahead of estimates. Handset shipments of 51.9 million easily beat the 48 million target and the 50 million whisper. ASPs for phones held togther and just fell slightly, as expected. Maybe most importantly, 3Q revenue guidance, the only guidance figure MOT provides was $10.9 billion to $11.1 billion, the midpoint being $500 million ahead of consensus.

In terms of the impact on MOT shares, I could stop this summary right now. The quarter is a win. MOT can rally back to the mid $20s, adding a couple of dollars on to the after hours advance. Now, let's just hope that Nokia keeps the wind at MOT's back when they report tomorrow.

Here are some details from the conference call....

Management said that as the quarter progressed business accelerated across the entire company. Guidance commentary for revenues for each division reflected this statement.

Handset commentary was extremely confident. Management says the RAZR is as strong as ever but that the company is becoming much more balanced with SLVR selling well and the Ming in China and other products in emerging markets. Additionally, they have not seen a slowdown in iDen. In fact, iDen had a record quarter and was up sequentially. Share gains at Verizon and Sprint are helping in the US. Q is selling "very well" with lots of tests at Fortune 1000 sites. Management downplayed the competition between Q and Blackberry type devices. They view Q as more a PC substitute or mini-mobile PC. They don’t think of Q as a smartphone.

For the rest of the year, management expects to gain market share in both quarters and increase margins year over year in each quarter. Furthermore, management said that it will outline at next week's analyst meeting how it will get margin up the mid-teens.

There was an interesting exchange regarding the datapoints from the supply chain. Management completely dissed the analysis. They even said that "none of the reports we have seen are even remotely accurate." The question actually was driving at whether inventory was building across the industry. Management emphatically said it was not. Over on Real Money, Tero Kuittinen has discussed this risk so I'll be interested in his post call thoughts.

Commentary on the newly enlarged/combined Networks and Enterprise business was also constructive. The company expects mid-single digit year over year revenue growth the rest of the 2006. I would have liked to have heard more about margins in this business but there was a comment that the integration of the divisions was going at least as well as expected.

Connected Home continues to be very strong on the top line with margins restricted by investment spending for wireline products. This business is 1/10th the size of mobile devices so it doesn’t receive a lot of focus by analysts.

Several questions concerned the company's $10 billion net cash balance. The company says it no longer plans to retire early $1 billion in debt and will continue to buyback shares at a pace of 40 million or more a quarter. Debt maturities next year will be retired with cash.

Overall, the tone of the call was excellent. Management was confident and analysts were not nearly as tough on the company as usual. With the analyst meeting next week likely to continue the bullish tone, I think the shares can go higher even after the after hours pop.

Motorola Earnings Preview

Motorola (MOT) reports after the close on Wednesday, July 19th.

Despite weak stock price performance and negative datapoints from the supply chain, analysts expect MOT to post a good 2Q. In fact, recent analyst commentary has had an improving tone as it relates to the quarter. This is probably because other handset vendors have reported indicating that overall industry shipments were strong and MOT probably gained market share.

MOT shares have consistently traded down following its quarterly earnings since the company’s turnaround became evident after its explosive 1Q04 earnings report. This has been true despite the fact the company has not really missed estimates since 2003. The only times that MOT shares have rallied off earnings is when the company and beat the number and raised guidance. In this quarter, I think the bar is a little lower due to lousy action in the stock over the past few months. However, MOT bulls, which include me, really need a beat and raise scenario.

The beat side seems pretty plausible given the likely strength in the key handset division. The raise may be more difficult as concerns abound about a deceleration in the RAZR, sell-through on the Q, and the general health of the mobile devices business. Additionally, MOT is not expected to ship new models until the 4Q even though new model announcement have been coming steadily and more could be ahead at the company’s annual analyst meeting next week.

MOT shares look cheap at 14.6 times 2006 estimated EPS. When adjusting for over $4 in net cash on the balance sheet with more on the way, the stock looks even cheaper. However, MOT shares need momentum on handsets and margins and a better outlook for its network business. Overall, I see the bar as low enough to beat for the 2Q and the rest of 2006, so I remain long going into the quarter despite what feels like a higher risk profile.

For 2Q, consensus is calling for EPS of 31 cents on revenues of $10.27 billion....

The closely watched handset division is expected to ship 48 million units and show margins just north of 11%. I have seen at least one estimate for 50 million handsets. ASPs for handsets are projected in the upper $130s, down from $145 last quarter. RAZRs contain to ship in quantity while the Q had initial shipments in the quarter and MOT continues to attack the emerging markets with low cost handsets. Low-end phones reduce ASP and margin so that is something to watch. Margins also are feeling pressure from infrastructure build to reach emerging markets and a loss of royalty revenues. Also of note will be sell-through of the Q and comments on future shipment levels.

It looks like most analysts have adjusted for the divestiture of the automotive business but that could still cause some confusion when analyzing the reported numbers. Getting rid of this business will help future growth and margin performance.

MOT's Networks division has been a real disaster in the eyes of analysts with 5 straight quarters of sequential declines in revenue. Loss of iDen revenue as Spring Nextel upgrades its network remains an issue.

Connected Home should continue to perform well as MOT is delivering lots of set tops to the cable industry which is enjoying high growth in subscriber units for telephony, digital cable, and high speed internet.

Motorola: Mixed Quarter, Negative Reaction Deserved

I didn’t like what I read in Motorola's press release or heard on the conference call. I am now looking for an exit price. However, I think the decline so far today is too severe relative to my concerns and to my view of the Street's analysis of the quarter. Consequently, I plan to sit tight for a couple of days and see if I can get a somewhat higher price.

MOT fell short in several areas in the quarter. First, despite massive handset sales of 46.1 units, average selling prices fell an unexpected $7 to $139. This led to a lower operating margin in the handset business than I expected. Second, the Networks business continues to underperform. It had a lousy quarter. Third, the normally reliable Government business had a shortfall. Fourth, guidance called for an incremental $300-500 million in revenue relative to current estimates but EPS only in line with current estimates. The implication is that issues that cropped up in margins in 1Q will recur in 2Q. Finally, the company is back to taking lots of restructuring charges.

By far what matters most to MOT investors is health of the handset business. I believe that it is concern about handsets, rather than the Networks shortfall or other factors that lead to the sell-off in the shares yesterday....

Management stated that gross margins in handsets were actually above expectations but the company chose to reinvest 100 basis points of gross margin into distribution in order to build for continued market share gains. This is a plausible explanation and based on the several million unit upside in handset sales it appears to have had an immediate payoff. However, the mix in handset sales did not shift heavily in favor of emerging markets where management said that most of the investment was made. In fact, sales of "thin" phones were unusually strong again this quarter. Even though thin phones are selling quite well in emerging markets, to me, this says that pricing in established markets like the US and Europe for products like the RAZR and the SLVR is falling more than I previously expected. In the US, you can buy a RAZR for $49 to $99 with most plans and at most service providers. I have to think that MOT's investment of gross margin dollars was used to buy share for its high end phones. Given lots of copycats on the market, this strategy probably makes sense. However, I think it raises the risk profile for ASPs over the balance of 2006.

Looking ahead, my concern is that handsets might be more competitive than expected, limiting the margin upside. Management said that they would trade margin percentage for margin dollars. I can accept that, especially if it boosts long-term competitive positioning. However, this is a different story than management has been pushing over the last year when operating margin expansion was the goal. I don’t like the shifting strategy and I fear that what really happened is that management went for market share and when it saw the financial outcome, the strategy changed. Now, MOT has brought ASPs for thin phones down and it might not be able to lift them. This strategy requires continuing above expectation growth in global handset sales and more successful new product introductions. Possible, but it adds risks.

Overall, I expect MOT will perform strongly in a financial sense over the balance of the year. I also think that recent handset market share gains will hold and maybe even build. Restructuring actions will help corporate operating margins later this year, especially in 4Q. Guidance for 2Q on EPS might prove to be low. For all these reasons, I think MOT shares are overreacting today.

However, as outlined above I don’t like the apparent shift in strategy in the handset business. It raises the risk profile of MOT as an investment. This lowers the risk-return tradeoff and makes the shares less attractive to me. For that reason, I am looking for an exit.

Motorola First Quarter Earnings Preview

Motorola (MOT) reports after the close tonight. The stock has rebounded strongly in recent weeks as analysts have grown more optimistic about global handset growth in 2006 and MOT's growth in the first quarter. Concerns remain about second half growth as comparisons are tough, the network division continues to struggle, and loss of high margin royalty income continues. A new fear is that the company may use its incredible financial strength to acquire the lagging Siemens telecom business. While this acquistion might fix MOT's own lagging network infrastructure business.

A more complete preview of MOT's earnings report is in the "Continue Reading" section. Just click the link below. I should note that this preview was written by my fellow Street Insight contributor, Jeff Bagley. JEff is covering the MOT call this evening for StreetInsight. Jeff and I see eye to eye on a lot of stocks and use a similar analytical approach. Thanks to Jeff for allowing reproduction of his work on Northlake's website.

I still think MOT deserves to trade in the upper $20s. Conseqeuntly, the shares continue to held througout the Northlake client base. My patience is wearing a bit waiting for the market to agree with me. I respect the market so the results and reaction to the quarter will make a difference to my plans for MOT shares.

Most investors now expect Motorola (MOT) to post good numbers when it reports first-quarter earnings Tuesday afternoon, and that's become a problem. The bar is now rather high, and it will take a fairly magnificent showing to move the stock appreciably higher in the short term.

Positive data from Motorola's supply chain, as well as positive comments from both MOT management and competitors, have raised expectations for the handset division, which is now the primary driver of the company's sales and earnings growth. A positive catalyst for the stock could be better-than-expected strength in margins - a distinct possibility - or earnings guidance that is better than the cautionary, under-promise and over-deliver comments to which all have grown accustomed. Of course, a sales and/or earnings shortfall would probably spell certain trouble for the stock, but I don't believe that's likely.

According to data compiled by Thomson First Call, analysts are looking for Motorola to earn $0.29 a share on sales of $9.56 billion, for year-over-year growth of 32% and 24% respectively. Management guidance, issued in February is for earnings per share of $0.27-$0.29 on sales of $9.3 billion to $9.5 billion. Analyst estimates have been drifting higher most recently, based mostly on strength in handsets.

Thin Is In

Although Motorola's operational turnaround under Ed Zander has been most impressive, the primary driver of the company's recent stellar performance has been its lineup of thin phones. The company's RAZR phone has been an unmitigated success, and the SLVR sales have been robust as well. Analysts are looking for RAZR and SLVR shipments of about 13 million and 2.7 million units, respectively, for the first quarter. Total unit shipments for the Motorola portfolio are expected to be between 43 million and 44 million. This estimate has risen substantially recently given good news from the supply chain, from the industry, and from management comments.

Of course in this industry you innovate or die, so Motorola cannot rest on its laurels. In fact, one of the primary concerns among investors is the company's ability to replace the RAZR - already in its unheard of seventh quarter of strong sales - with the next new thing. The company is counting on the SLVR to pick up the slack, but the competition is close behind, especially with Samsung's strategy of imitating MOT's thin phone product offerings.

Low End Phones Key to the Future?

While the company has had a great deal of success on the high end, there is tremendous opportunity on the low end, especially given the emergence of gigantic cell phone markets such as China and India. In fact, there's been quite the buzz on Wall Street on this subject recently. Investors will be looking for progress on sell through for these regions, and to get a better handle on average selling prices (ASPs) and margins.

Low-end phones have much lower ASPs, of course, so the focus will be on just how much progress management has made - or could make - on its supply chain initiatives. Competing on the low end can only be successful longer term if component pricing is attractive. Given Wall Street's general aversion to falling ASPs, investors will be especially interested in how profitable Motorola can be with its strategy of taking share on the low end of the market.

Margins, Margins, Margins

Analysts are expecting significant margin growth both this year and next as the company progresses toward reaching its long-term goal of 13% to 15% operating margins. Accordingly, the company's margin performance during a strong handset market will be a key metric for investors. It looks as if most analysts are forecasting an operating margin of about 11.7%-11.8% for the quarter, going up to about 13.0% by the end of 2007.

Again, any substantial surprise - either way - could be a catalyst for the shares. Bear Stearns recently upgraded the stock based on their expectation for better-than-expected margin growth.

Other Businesses Remain a Concern

Although it looks as if Motorola's handset business is on fire, investors remain concerned about the company's network infrastructure business, as well as the small connected home (set-top cable boxes) division. Representing 21% and 17% of the company's 2005 sales and operating profits respectively, the infrastructure division is the biggest concern as network operators migrate from legacy systems.

The lack of new 3G WCDMA contract wins has been mentioned by several analysts recently, and there has been speculation about the Nextel iDEN business since that company's merger with Sprint. Motorola holds a monopoly on that business, and that will likely change as at least some of those users are migrated to Sprint's CDMA 2000.

A Colleague's Perspective on Motorola

A fellow contributor to StreetInsight.com recently wrote a good piece on Motorola (MOT). Jeff Bagley and I share a similar view of stock market investments and own several of the same stocks for our clients. Since you are probalby getting bored with my commentary, please click "Continue Reading" to read Jeff's insightful thoughts on MOT.

Motorola (MOT) stock has rebounded nicely since I mentioned it last week in the context of its recent RAZR product defect problems. As expected, the problems associated with the RAZR were limited in scope, and resolved very quickly. Hats off to CEO Ed Zander, who has rebuilt Motorola into a company capable of spotting such problems early and taking necessary steps to greatly limit the damage. I'd hate to think what would have happened only a couple of years ago.

Current Strength Stemming From Improving Prospects in China

Although part of the stock's recent strength is attributable to investor relief that the RAZR problems didn't morph into something more serious, much of the current strength stems from the company's improving prospects in the all-important China market. Ed Zander is over there right now, and in a press release announcing three new investments in the country, Motorola claimed to be the largest foreign investor in China's electronics industry, with $3.6 billion invested since 1987.

Expect Benefit From China Mobile's Increased Guidance

More importantly, however, is the news that China Mobile has significantly increased its guidance for capital spending for both this year and next. Motorola should be a prime beneficiary, and this should go a long way in allaying investor fears about a possible slowdown in MOT's wireless infrastructure business.

Citigroup analyst Daryl Armstrong, who covers Motorola, today highlighted China Mobile's increased capex plans. Translating into dollars, he writes that China Mobile plans to spend roughly $10.4 billion this year, up from previous guidance of $6.7 billion. For 2007, guidance goes up to $9.7 billion from previous plans of $5.7 billion. Although Armstrong notes that this is slated for 2G networks, I believe the money is earmarked for upgrading existing 2.5G networks. (According to Bloomberg, China hasn't set a timetable for granting licenses for 3G networks.)

Armstrong notes that Motorola has a 13% market share into China Mobile, implying that MOT's take from China Mobile could increase by 50% and 70% in 2006 and 2007, respectively.

Many Believe RAZR Success Will Be a Tough Act to Follow

As I've repeatedly noted, Motorola is a stock that everyone loves to hate, despite a rather spectacular turnaround orchestrated by Ed Zander. Given the pessimism, it's little wonder that Motorola stock is still relatively inexpensive. Consider that the company has about $10.5 billion in net cash on its books, which equates to roughly 18.4% of the company's equity market capitalization, or more than $4 per share.

Even without adjusting the earnings multiple for the cash, despite the recent run, the stock still trades at about 17 times earnings. And those are very high quality earnings, with gobs of cash flow backing them up. The major wildcard with Motorola stock appears to be its continued success in the highly competitive handset market, with many believing that the RAZR success will be a tough act to follow.

Company Continues to Make All the Right Moves

Those concerns are valid, but from where I sit Motorola continues to make all the right moves, and should build on its momentum in the coming quarters. The current valuation already reflects, in my view, the bulk of investors' growth concerns.

Motorola Under Pressure

Motorola (MOT) shares are set to bounce at the open on an analyst upgrade. The gains look small so far, especially against the 16% decline in the stock since 4Q05 EPS were reported on January 19th. Earnings were greeted by a sharp sell-off as numbers merely matched consensus despite higher whispers and despite management noting that some shipments were delayed by component shortages, 1Q06 EPS guidance was not increased. The reaction showed that investors still don’t trust MOT and are concerned about the company’s ability to sustain its market share gains. These concerns may have been increased by worries that unexpectedly strong handset shipments in 2005 for the entire industry won’t repeat in 2006 making the competitive environment that much tougher for MOT. Finally, concerns continue that the RAZR is getting to be an old form factor whose appeal will wane....

Selling in the shares had moderated somewhat until late last week when two new issues arose. First, according to one analyst, there were reports that deliver of the Q Blackberry-type device to Verizon would be delayed to 2Q06. Second, on Monday, another analyst reported that initial demand for the company's PEBL phone at T-Mobile was "very slow" and that RAZR sales at VZ were not as strong as expected. T-Mobile has an exclusive on the PEBL right now and VZ had not offered RAZR's until very late in 2005. Compounding the issue was the analyst's report that Samsung's RAZR killer, the "Blade," was selling very well at Sprint. This analyst did report that Cingular is seeing strong demand for the SLVR.

Other analysts have reported better anecdotal evidence about MOT's sales so far this quarter but the continued selling in the shares clearly show investor concern that MOT's market shares will halt or reverse. I have consistently stated that investors are underestimating the turnaround at MOT and are basing too much of their analysis on the missteps in the pre-Zander era. It appears this debate will be answered with 1Q06 results and 2Q06 guidance. I think the street will respond to market share and ASPs for MOT with overall industry shipments less of a factor.

In the meantime, the shares look cheap. Consensus estimates for 2006 and 2007 are $1.31 and $1.49, respectively. Using those figures, the P-E is 15.7 times and 13.8 times 2005 and 2006. Adjusting for the company's extremely strong balance sheet makes the shares look even cheaper. MOT ended 2005 with over $4 per share in net cash, which equates to about $10 billion. Assume it earns 4% and is taxed at 35% and the cash contributes 10 cents per share to EPS. Back out both the net cash and the EPS and the P-E falls to 14 times on 2006 estimates. The valuation should provide support for the stock around current levels as should the large share buyback the Board approved last summer.

I've been holding out for $26-28 to exit my remaining MOT position. Reaching that target is proably a stretch right now but I believe any resumed confidence in the 2006 outlook could push the shares back to $23-24 ahead of the company's 1Q06 report in early April. I am staying long.

Motorola Earnings Summary

Motorola (MOT) shares reacted very poorly to the company's 4Q05 earnings report and 1Q06 forecast. My thoughts on the report are in the "Continue Reading" section. Those comments are an exact reporduction of what I posted on Street Insight and were written during and immediately after MOT's conference call on Thursday afternoon. With the benefit of a little hindsight and review of analyst commentary, I don't think my analysis emphasizes enough that while MOT reported a decent quarter and offered inline guidance, expectations were for another positive surprise and increased gudiance. Furthermore, given that management discussed supply chain issues that restricted 4Q05 handset shipments and margins and said that those issues were resolved, the guidance should have been stronger. This explanation certainly sounds like some shipments slipped out of the December quarter into the March quarter. All that said, my opinion remains bullish on MOT. The share price decline is an overreaction and is at least partially the result of analysts refusing to trust the turnaround at MOT. I think they will proven wrong in the next months and stand by my goal of selling the remaining holdings in MOT in the $26-28 range.

Motorola (MOT) traded down $1.75 after reporting in line numbers and 1Q06 guidance that merely matched current consensus estimates. I think investors were troubled that margins weren't better in handsets. I incorrectly noted that margins declined but it turns out there was a one-time item that impacted the reported number related to past use of Kodak intellectual property. Excluding that operating margins would have been 11%. I still think this is what troubled investors as most of the questions on the call were about handset margins. I believe that given the strength in units and ASPs analysts wanted more operating leverage. I also think that they would have expected a guidance bump for 1Q based on the strength in these factors in 4Q.

In response to these many questions, I think management gave satisfactory answers. This accounts for the partial rebound in the stock which rose 50 cents during the call. I think a further rebound is in the cards for tomorrow. Management noted that it overcame serious supply chain issues to meet the 4Q shipment target of 44.7 million. Component supply in mechanical, not silicon products, was the issue – stuff like hinges and keys. Given that the company introduced 26 new products in the quarter it is understandable that some issues cropped up. Management said the problem was dealt with and that there was no issue for 1Q related to this. Inventories were stated to be on target.

Further issues that held back operating leverage in handsets included upfront marketing costs for new product launches, investment in China and India in marketing distribution, and a sequential uptick in R&D. Given the confidence the company maintained in its competitive positioning and its forecast for 10-12% global handset growth in 2006, these investments are understandable.

Overall, I find the focus on these issues to show two things. First, there is still a lack of confidence on the part of the Street despite the amazing 2004 and 2005 financial, marketing, manufacturing, and shipping performance. For example, not one analyst noted that meeting estimates despite the supply chain challenges and investments was a positive. Second, analysts are rightly concerned about any company maintaining momentum in cell phones given the commodity characteristics of the product and the jumpy market shares of the leading players. I think this second factor partially explains the ongoing skepticism toward MOT noted in the first point. On that basis, I'll give the analysts some credit for coming around on MOT.

Outside of handsets, the other primary concern on the call was the weak quarter in Networks and the guidance that the division would be down again in 1Q. MOT is not as well positioned as Nokia or Ericcson in infrastructure but management did promise 2006 would be an up year. It is worth noting that Mobile Devices had 3.5 times the revenue of Networks last year. I don’t think there is any link between the phone a customer uses and the network infrastructure a service provider uses so I am not as concerned about the lagging performance in Networks. Additionally, the Government, Mobility, and Enterprise Systems segment is as large as Networks and showed reinvigorated growth in 4Q.

At $23, MOT trades at 17.6 times the 2006 consensus estimate of $1.29. Net cash per share is over $4, or $10 billion. Fully taxed net cash contributes a little over a dime to 2006 estimates. Adjust for the cash and the multiple comes down to 16 times. 1Q06 guidance calls for 15% growth on the top line and 23-32% growth in EPS. Growth in EPS for all of 2006 is currently projected at 15%. I think the current 2006 consensus estimate will prove but even if it doesn’t valuation is hardly a stretch. I entered the call hoping for a pop to $26-28 to lead me to an exit point on the shares. At $23, I am a firm holder of what I own and if the share drifted back toward $20-21 I'd buy more based n what I know now. I think $26-28 is still realistic for this year so if I weren't long already I'd be a buyer right here in anticipation that 1Q06 guidance will prove conservative.

Motorola Earnings Preview

Motorola (MOT) reports after the close on January 19th. I outlined my general thoughts on MOT a few days ago. I am expecting a solid quarter and decent 1Q06 guidance. I think those two things and some recent positive comments about 2006 handset market growth will allow MOT shares to push to new highs in 1Q06 with the shares having the potential to reach the upper $20s. Northlake clients have been long MOT for over a year and very well rewarded. If the scenario I just outlined occurs I'll be looking to exit the MOT position in the $26-28 range....

Consensus for 4Q05 calls for EPS of 34 cents on $10.5 billion in revenues. Handset units are projected at abut 45 million, up form 38.7 million in 3Q05. Handset margins should expand again to over 11%, up 20-30 basis points sequentially. The ASP on handsets should be flattish around the $145 level from last quarter. AN inline quarter will bring full year 2005 EPS to $1.12.

As usual with MOT, guidance is at least as important as the quarter to be reported. Current consensus for 1Q06 is 28 cents for EPS on revenue of $9.33 billion. Handset units are set for a normal seasonal sequential decline of about 10%. EPS for 2006 is currently projected at $1.29.

The big questions for MOT shares are (1) how strong will the global handset be in 2006, (2) will MOT be able to maintain share, and (3) will margins continue to expand. Regarding the handset market, most observers were surprised by growth in 2005 that exceeded 20%. Presently estimates for growth in 2006 seem to be moving up from earlier forecasts of 10% growth. In 2005, MOT gained market share due to the massive success of the RAZR and successful entry into lower priced phones for emerging markets. The RAZR is getting old by normal industry life cycle standards and some analysts have recently noted that the PEBL and SLVR don’t seem to have much buzz yet. Consequently, there appears to be some concern that MOT may not be able to sustain its recent market share gains. MOT's margins in handsets still trail NOK by a significant amount. MOT has stated they believe that margins can rise to 13-15% and rival NOK. Recently, margins have been trending up and are set to cross 11%. Analysts are looking for a 2006 margin of approaching 12%. One thorn in the forecast is the loss of QCOM royalties which are extremely high margin revenues that flow through the handset division.

The press release and conference call should provide insight into each of these questions. To reiterate, my position is that MOT has been a good ride and I don’t want to risk overstaying my welcome. I think some of the concerns about 2006 could prove valid and expectations for MOT are much higher than a year ago when nobody respected the turnaround. The risk-reward tradeoff is thus not as attractive, especially considering the historical volatility in handset market growth and market shares.

Motorola: Looking For One More Move Up Before Selling

Northlake clients have been long Motorola (MOT) for over a year and were well-rewarded in 2005 when the shares rose over 30%. I lightened the position once in the low $20s and have been hoping to sell the balance in the $26-28 range. Analysts have begun to preview the company's 4Q earnings report due on January 19th with most expecting another strong quarter but probably without the upside surprise that accompanied several of the earnings reports in 2004 and 2005. Key metrics in the quarter will be handset sales, handset margins, and ASPs for phones.

I don’t think the quarter is likely to disappoint from a financial perspective but the stock is more likely to react the 1Q06 and 2006 guidance comments anyway. Here is where there is a difference of opinion on the Street. There seems to be a consensus forming that 1Q06 will be strong. Analysts are pointing to datapoints from the supply chain that indicate the usual seasonal decline in handset shipments will be below average. This would mean that the surprising strength in the global handset market in 2005 will continue early in 2006. However, beyond 1Q06 analysts are beginning to split on how strong the handset market will be. Consensus calls for 10% growth for the full year which would be healthy but a clear deceleration in growth....

Decelerating market growth is risky for MOT because its leading product, the RAZR, is getting old by usual cellphone market product standards. Maybe more important to the company's 2006 outlook though is continued growth in handset margins. Management has said that margins could head to 13-15% but has never given a timetable. Despite the positive surprise in unit shipments in 2005, the market remains brutally competitive. Will MOT be able to expand margins in 2006 against slowing market growth? The answer to this question is complicated by the loss of royalties from Qualcom (QCOM) which carried a margin of virtually 100%.

My strategy for Northlake's MOT position is to look for further strength off the 4Q report to sell the position. The shares still aren’t all that expensive, trading at less than 20 times the 2006 consensus estimates with several dollars per share in cash on the balance sheet. I think a multiple of 20 on EPS adjusted for interest on cash plus the cash is a reasonable target and that would get to my $26-28 exit target. However, I do think the risk-reward tradeoff has worsened (mostly due to the great performance on the stock) due to lesser growth in the handset market and slowing, though still strong, earnings momentum at MOT.

Taking Partial Profits in Motorola

With Motorola shares breaking through $20 based on a favorable cover story in this weekend's Barron's and in anticipation of the company's analyst meeting which starts this evening, I reduced holdings for most clients this morning. Similar to the partial sale made in Sears Holding a few weeks ago, this sale is all about maintaining discipline. I have had a long-time target of "low $20s" on MOT. When a stock reaches an initial target it makes sense to take a little off the table. This is especially true when the market has had a big rally as this one has so far in July. Current MOT positions are considered normal size at around 2.5% of most client portfolios, so the bullish comments I posted on MOT last week are still valid. I expect the shares to go higher over the balance of this year.

Another Strong Quarter For Motorola

As you know, I am a daily contributor to StreetInsight.com, one of the sites operated by the Street.com. Among other things I do for them, I provide live commentary on conference calls. In the extended comments section available to subscribers is my commentary on MOT's latest quarter including pre call thoughts and the live comments I posted. Overall, it was a good quarter for MOT and supports a continued bullish view of the shares.

Post Earnings, Pre Call Comments

Motorola looks like it had another strong quarter and guidance for 3Q is nicely above consensus and equals the high end of current estimates. You never know, but even with the high bar set by the recent estimate increases and stock price performance, this seems good enough to allow the shares to move higher.

EPS came in at 26 cents after backing out 12 cents in one-time items. Consensus was 25 cents having moved up steadily over the past month. Revenues were $8.83 billion against consensus of $8.55 billion. Handset shipments were 33.9 million which easily beat estimates and whisper numbers of 32-33 million. ASPs declined about 6% sequentially but some decline was expected due to initial shipments of a $40 handsets to emerging markets. Networks looks like it could be a little light as some had expected with revenues growing only 5.5%. Government and Enterprises also had a second consecutive sub par growth quarter with a revenue gain of just 4.7%. Handset margins look fine to me, especially with ASPs down a bit and the huge volume shipped. Margins are 10.2%, up 20 basis points sequentially. Total company margins are up 50 basis points sequentially to 11.1%. Leverage on the SG&A against the big top line gains is helping offset a drop in gross margins as mix shifts toward handsets.

The balance sheet is in great shape. Cash is $12.8 billion against debt of $5.3 billion, netting out to $3 per share.

3Q05 guidance looks good to me at 27-29 cents against a consensus estimate of 25 cents. A quick review of the estimates showed only a handful out of more than 20 that were at 27 or 28 cents. Revenue guidance of $8.9-9.1 billion is above consensus of $8.58 billion.

So the press release and financial tables read well ahead of the conference call if I am not making any mistakes. I have been fearful the bar was set too high for this report but so far so good.

Conference Call Notes

� MOT is trading down 80 cents from the close despite a strong report and good guidance. It seems like a knee-jerk, sell the news move being caused by YHOO and INTC. 2006 estimates likely headed to $1.20 or higher which leaves the stock reasonably valued, especially after backing out $3 per share in cash. Now let's see what we hear and whether it changes my mind.

� Zander is "very excited" about a great quarter for "every segment of the company." Key takeaways are 17% y-o-y and 8% q-o-q revenue growth, 170 basis point market share gain in handsets sequentially, return to profits in automotive unit, and another billion dollar operating cash flow quarter and $900 million in free cash flow.

� Guidance is above this morning's First Call consensus and we expect expanding margins in 3Q. As Zander wraps up, shares are lifting a bit to $19.20, up 15 cents from the start of the call.

� CFO is now reviewing the press release and accompanying financial tables. The pre call comments I posted contain most of the information. Q3 sales guidance is for growth of 19-21%, better than 17% in 2Q. Pleased with gross margin given big sales of low priced handsets. Shares are now back to $19.36, up 30 cents since the call started but down 50 cents from the close.

� Stock repurchase update announced on 5/19 for $4 billion. Bought 9.2 million in 2Q at average of $17.86. Expect pace to go up in 3Q.

� Back to Zander now for some segment analysis starting with handsets. Margins would have been 10 basis points higher in handsets without a one-time charge. "See more opportunities for profitable growth in a healthy handset market." Market strategies targeted at NOK and want to be even stronger #2 globally. Very strong GSM position and still focusing on CDMA. iDEN demand "continued to expand." #1 in Latin America, units up 50%. #2 in Europe with 14% share in best ever 2Q in Europe. Units up 43% y-o-y. First time #2 in Europe. North Asia market share flat. Holding own in China. "Stay tuned" for improvement. Emerging markets up 74% y-o-y. Market share up 250 bps sequentially on 57% unit gain. Entry level and RAZR selling well. Will continue to gain share vs. 9% this quarter.

� CDMA units were down in the quarter. ASPs down 4-5% y-o-y due to low end units. More of the same in Q3 but ASPs should be more stable.

� Channel inventories below industry averages on a global basis.

� RAZR units doubled in Q2 vs. Q1. Zander is reviewing current hot new products and talking of more to come. Goal is "wickedly compelling" products. Who would of thought that MOT would ever be cool again?

� Networks: still want higher margins. Renewed focus and want to get better. Won 3G in Taiwan. Testing WiMax with Sprint. Guidance for Q3 is for sales and operating earnings to be up y-o-y.

� Government and Enterprise: government was up double digits but automotive flat held back segment. Charge in auto business hurt margins for segment. I missed the auto weakness in the pre call comments, so government remains a key growth driver and a unique business for MOT. Guidance for Q3 is for sales and operating earnings to be up.

� Connected Home: margins starting to expand on economies of scale and improved supply chain. Shipping Ojo, a product that once was highly touted � a personal video phone.

� Zanders personal scorecard is very good especially in terms of renewal of relationships with customers. Talking strategy now not operating issues.

� Still have a road map to 13-15% operating margins 2-3 5 form supply chain, 50 basis points each form customer delight and G&A, an 50-100 bps form R&D. This is very positive for the long-term story.

� As Q&A starts, stock is at $19.40, cutting initial after hours losses in half.

Q&A:

� Any mix shift in handsets in 2H05? A: 3G a little slower to take off. GSM, UMTS, and iDEN will grow but CDMA will pick up and show significant growth.

� How did low end phones impact margins? Is supply change improvement helping profits on low end phones yet? A: yes, low end margins are similar to segment average. iDEN ASPs were significantly down but will improve when new products shit later this year.

� Will margins hold when RAZR pricing falters as all phones do? Or why aren�t margins even higher given huge shipments? A: we have are developing a broad line and we are not worried that margins will stall if RAZR pricing follows normal path. There is a sense of confidence from management that is bullish in response to this question. RAZR only 10%of 2Q sales and many new products already announced and still to come will helps on high end.

� Any supply constraints on RAZR as it goes to 3G and CDMA? A: No. We hope to have a problem of not being able to meet demand. The new MOT can handle it is what Zander is answering. The analyst question shows the lingering concern of prior shipping problems. They seem to be saying they can sell as many RAZRs as they can produce.

� MOT shares continuing to strengthen as Q&A goes on. Now trading at $19.60, highest in after hours session and down just 25 cents from close after going as low as $19.05 initially. Whoever sold at $19.05 and $19.10 has be kicking themselves. This is a very bullish call and management team is confident that there is more to come.

� Govt and Enterprise guidance is vague. Can you be more specific? A: not providing specifics but Government part of business looks healthy.
� Can you provide details on supply chain improvements? A: More on this at next week's analyst day. Trying to coordinate common platforms across company. Trying to gain scale with individual suppliers.

� What will share count be going forward? A: we hope we can keep it flat.

� How will mix of handsets impact Q3? A: Emerging market save lots of folks who buy higher end phones. These markets have not had a choice of vendors so we want to offer a mix of low and high end products. Most 2Q new products did not ship until late in the Q so that will help in 3Q.

� Color on CDMA in U.S.? A: we are getting ready to improve share at CDMA vendors like Sprint and Verizon. The lineup will improve in CDMA as the company enters 2006. Management made comments here about 1Q06 that are positive and will be liked by the Street. EPS growth in 06 vs. 05 is key to expanding the multiple and getting the shares to the mid $20s.

Summary

Who would have thought that on a night when Intel, Yahoo, and Motorola reported that MOT would be the star performer. It really shows how big the turnaround at MOT has been. I think the fact that MOT's earnings and guidance were great while INTC and YHOO were nothing special is significant for MOT shares. MOT's turnaround only got acknowledged by the Street when 1Q05 was reported. However, the estimates have risen sharply so valuation hasn�t expanded all that much. The call made clear that for at least the next three quarters, MOT will produce big numbers. Estimates will be going up and I think the stock will follow.

Management had a real sense of confidence on the call. They are focused on new product introductions and margin expansion at the same time. The evidence suggests they can pull it off. The company is hosting an analyst day next week and given repeated references to it on the call I think they will give the Street a better sense of the handset road map that includes more RAZR related phones, music phones, and a Blackberry type device. Further, MOT again talked today about long-term margin expansion of 300-500 basis points. MOT wants is margins where Nokia has been. The company has raised its internal bar and momentum currently in the business should last for awhile. I found it interesting that management mentioned handsets that would help in 1Q06. Clearly, this team is focused and thriving.

The shares are off a bit after hours thanks to the YHOO and INTC results. I'd be a buyer on weakness. Estimates are going up and multiple expansion lies ahead. If you are bullish on the market, you should be able to see MOT comfortably in the $20s this year. I do.

Motorola Reports Tonight

Motorola (MOT) reports tonight after the close. Wall Street Insight estimates have been rising steadily throughout the quarter and are well ahead of the guidance provided by management on the 1Q05 earnings call. Earnings are projected at 25 cents on revenues of $8.55 billion. The estimate is up from 22 cents three months ago. Other key metrics to look at tonight include handset shipments, ASPs, handset margins, and infrastructure sales...

...Handset shipments are projected at 30 million but a higher number is being whispered. ASPs could be down a bit as MOT is shipping a low cost phone for emerging markets. Handset margins need to be flat to higher to satisfy the street. Infrastructure sales are a weak spot and the focus will be on Nextel (NXTL) orders.

Since the close just prior to MOT's 1Q report on April 20, the shares have rallied over 30%. Along with rising estimates, this places the bar pretty high tonight. To drive the shares in the near term will require a strong quarter and especially good guidance. Current 3Q estimates call for EPS of 25 cents on revenues of $8.58 billion. 2005 and 2006 consensus estimates are $1.02 and $1.13. Both are up a dime since three months ago.

I think MOT shares can trade into the low to mid $20s if 2006 growth rates rise above the current 10% expectation. For this to happen, MOT must begin to deliver on the 300 basis points of margin potential from improved supply chain management that was first discussed last quarter. MOT must also sustain shipment momentum and remain on the leading edge of new product introductions. These two factors are likely to be extensively discussed at the company's analyst meeting next week.

While I am very hapy with the performance of MOT shares, I am a little worried about the reaction to tonight's report because the bar has been raised so high. It seems lately that stocks perform best in reaction to earnings reports if the stock price had not been reflecting high expectations. I don't expect to be disappointed as I believe the turnaround at MOT is long term and sustainable. However, handsets is a tricky business and one the Street hasn't shown an inclination to pay a premium multiple for. I am holding all shares heading into the report and expect to be long for the third-quarter report in 90 days. I'm just a little nervous.

Motorola Initiates A Share Buyback

Motorola (MOT) shares have finally gotten moving after an initial lull following the company's excellent first-quarter earnings report and increased guidance. A combination of factors have led to the move in the stock including the announcment of a larger than expected share buyback. In my review of MOT's first quarter earnings, I mentioned a share buyback was a possible catalyst. With the announcement and continuing good mometum in handset sales, MOT shares still have another 10% plus upside despite the recent move up....

...Here are some details on the buyback and favorable business trends:

Motorola (MOT) announced a $4 billion share repurchase to take place over three years. The repurchase is not a great surprise but the size is about double what I think the Street was expecting. Analyst commentary suggests that an accelerated timetable for buying shares could raise 2005 and 2006 estimates by 3 cents and up to 10 cents, respectively.

Beyond the dynamics of the repurchase itself, several other positives can be read into this news. First, management seems to be signaling confidence in its turnaround on the heels of a positive quarterly earnings surprise and increased guidance. Second, some investors have feared MOT would use its balance-sheet strength ($6 billion net cash) to make a large acquisition of something like Lucent Technologies (LU) or Nortel (NT). A larger-than-expected share buyback can certainly be read as a sign to the Street that no large deal is on the horizon.

This is great news for MOT and will continue to regain the company credibility and an improved multiple. Estimates are likely to rise slightly as well due to the buyback and the confidence it sends about intermediate-term fundamentals. MOT shares have room to move higher still.

And looking at those fundamnetals, Wall Street is noticing the good strength in the company's operations. Since the company reported first quarter earnings, 32 of the 37 analysts that follow MOT raised their estimates. Consensus for 2005 now stands at $1.00, up from 93 cents prior to the report.

Since the earnings report, MOT has been upgraded by at least three brokers, including Lehman Brothers and Smith Barney. Positive buzz continues in research with several analysts very recently raising estimates above company guidance for the second quarter. These analysts say that channel checks indicate strong demand continues for the RAZR and from Nextel (NXTL) for iDEN phones.

Finally, MOT presented at a Wall Street conferences on May 10 and May 17 and maintained the bullish tone it sent on the 1Q05 call.

Motorola Finally Getting Some Respect

Beginning with the first quarter of 2004, Motorola (MOT) has reported five consecutive quarterly earnings reports that have matched or exceeded Wall Street estimates. Unfortunately, MOT shareholders have gone largely unrewarded for this impressive string of results as Wall Street has failed to embrace MOT's turnaround despite mounting evidence. Following last week's better than expected earnings report, it appears that the reward may finally be at hand because MOT management reinforced perceptions of its turnaround by providing a forecast for the current quarter that exceeded current Wall Street consensus. It was this fact that appeared to win Wall Street over and led to a 7% jump in MOT shares last Thursday. I think MOT shares have another 15% in gains ahead�.

On its quarterly conference call, MOT laid out a clear plan to boost market share and increase margins in the highly competitive cellular handset industry. Essentially, MOT is trading some of the margin benefit it gets for success with higher end, more expensive phones like the RAZR for market share in lower end phones priced at $40 and less intended for emerging markets. This effort is being supplemented by a renewed focus on the company's supply chain that offers 300 to 500 basis points of margin expansion potential. Presently, MOT earns a margin of 10% on its handset business, while industry leader Nokia earns a 15% margin. Nokia sells about twice as many phones per quarter as MOT, so economies of scale should allow it to earn higher margins. However, as the #2 supplier, MOT should be able to close the margin gap and gain economies of scale by being more aggressive in the high volume low priced handset market.

With a well thought out plan to drive revenue and margin, profits should follow. In fact, the first quarter showed clear evidence the plan could work when MOT earned 22 cents against 19 cents predicted by Wall Street. Wall Street analysts responded favorably to the report by raising MOT's 2005 earnings estimate by about 5 cents to just short of $1.00 per share. The five cents was made up of the 3 cents extra earned in the just completed quarter and two cents from the company's better than expected forecast for the current quarter. The analyst at Smith Barney, long a skeptic of MOT shares, also upgraded his rating to Buy.

I think MOT shares are well positioned to perform well for at least the next several months. Given the momentum in the business, analysts still have room to raise estimates further as additional evidence of success in the new strategy emerges. Furthermore, as the estimates rise, growing confidence in the company's turnaround should lead to a somewhat higher price-earnings multiple for the shares. I believe the shares are headed to $18-19 on the basis of an 18-19 P-E on what will likely turn out to be $1.00 in 2005 earnings per share. With 15% upside in the cards, MOT was purchased last week for client accounts that had not previously the shares.

Catching Up With Motorola

Cross-posted from StreetInsight.com....

Motorola (MOT) reports on April 20th. Yesterday, the shares had their best day in a long time, rising over 2% in a strong tape for technology stocks. After peaking at over $18 in December, the shares have fallen pretty steadily to recent lows at $14.70. I've been long the stock since last summer and quite frustrated as earnings results have generally been quite good. My thesis has been that improved execution under the new management team would be rewarded with a higher valuation. I thought numbers could be a bit low as well which would have added some leverage to the return.

Smith Barney was out with a good note yesterday capturing the issues that have troubled the stock. The same note included an estimate increase for the soon to be reported quarter to above consensus that was likely the source of yesterday's upside in the stock. The issues for the stock have been (1) rumblings from suppliers that MOT is pushing out orders, (2) lack of margin expansion in handsets against strong volumes and ASPs, (3) fears about the near-term impact of the company's rollout of sub-$40 GSM handsets targeted at emerging markets, (4) MOT's poor win percentage in wireless network infrastructure buildouts, (5) fears abut the impact of consolidation among wireless carriers � specific to MOT, fears about its relationship with the new Sprint-Nextel, and (6) general concerns about handset market growth, particularly in larger industrialized markets, and the corresponding competitive concerns.

Now that I write out that list, it is no surprise that the shares have done poorly. It is quite a list to overcome in an industry that has a lot of skeptics given its increasingly commodity nature.

Approaching the quarterly report, I think the expectations built into the shares are quite low. If Smith Barney is correct that strong unit volumes and ASPs due to sales of RAZR and iDEN phones result in a positive surprise, the stock is a good setup to trade higher. I plan to discipline myself to either sell the shares or buy more after analyzing the quarterly report. I still have this suspicion that the stock will move up sharply and Ed Zander will be the cover boy on the business magazines later this year for successfully reinvigorating Motorola. However, I am beginning to think that investors won�t pay a high multiple for wireless suppliers and the shares will languish despite a successful turnaround. Things should be clearer in less than two weeks.

Motorola: Good Quarter, Bad Stock

Motorola (MOT) shares have traded down about 9% since reporting fourth quarter earnings after the close on Tuesday after the market closed. The quarter was excellent, but there were just enough issues to cause a still skeptical Wall Street to sell the shares. I think the reaction is wrong and still believe the shares belong in the range of $19-22...

The details on the fourth quarter included: (1) EPS of 28 cents and revenue of $8.84 billion easily beat consensus of 24 cents and $8.46 billion, (2) handset voulme that was much better than expected with shipments of 31.8 million vs. expectations of 28 million, a 300 bps increase in mkt share, and (3) first quarter 2005 guidance for EPS of 17 to 20 cents is in line with consensus but dissappointing relative to the excellent third fourth quarter results.

One issue that is troubling the stock is the extraordinarily high handset volume and market share gain was partially driven by unexpected strength in low to mid-end handsets. This caused margins to be below expectations in the handset division. Lower-end phones are less profitable, and a mix shift of several hundred basis points internally toward lower-priced phones brought handset margins and average selling prices lower.

The other issue is that first quarter EPS guidance was not good enough at 19 cents or in line with analyst estimates. Revenue guidance was ahead of consensus for the first quarter indicating the margins are the issue.

I believe the Street will eventually give MOT credit for its vastly improved execution. Not long ago investors worried if MOT could even ship handsets on time. Now, shipment issues are so straightened out the company can meet unexpected demand in low to mid-end handsets. Rather than reward the company, the Street chooses to remain in fear of the brutally competitive handset market and MOT's past missteps.

Since the earnings report 12 analysts raised their 2005 earnings estimate and 8 analysts lowered their estimate. Overall, the estimate is up by a penny to 93 cents, giving the stock a P-E of 17. My thesis on MOT has been that the estimates for 2005 would prove low by at least a nickel and as they rose the multiple would expand to the low 20s. I have to admit that the guidance the company provided for the first quarter challenges this thesis. As of now, investors are unwilling to pay 20 P-E for handsets no matter how well the company is executing.

I believe that management is being conservative given the company's prior missteps. Thus, as of now, I plan to hold the shares and look for a rebound as the emotion surrounding the quarter subsides. I will also be on lookout for signs that the first quarter is shaping up well. If I don't see that evidence then it might be time to reconsider the thesis.

Motorola Reports

MOT reported earnings on Tuesday 10/19 after the close. Although I thought the quarter was fine and the fourth quarter outlook solid, the shares took a beating in Wednesday's trading. The Street still is giving MOT no respect despite what is now three straight good quarters. I'll be buying MOT shares for clients over the next few days.

Here is some more of my impressions on the quarter and the stock as reproduced from a post I contributed to StreetInsight.com....

Motorola Still Looks Good
10/20/04 10:06 AM EDT

I see nothing in Motorola's earnings report or guidance to change my bullish thesis. In fact, the continuing skepticism on the part of investors and analysts of another good result and in line guidance suggests that the shares still do not incorporate what is now an obviously successfully turnaround under the new management team.

MOT met consensus estimates for EPS and on just-barely-below consensus revenue. The guidance for 4Q placed the current consensus for both EPS and revenue right in the middle of the ranges. Some investors may have been disappointed that the guidance left open the possibility of a below-consensus fourth quarter. Other investors may have been disappointed that the third and fourth quarters won't provide significant positive surprises as the first and second quarter did.

My view is that management has earned some trust and credibility and wants to maintain it by providing realistic expectations and consistently hitting numbers. That would be a big change for MOT and one that will reward investors with a higher valuation on the shares.