Motorola Solutions Inc (MSI) — This communications equipment manufacturer makes wireless networks, public safety systems, data capture devices and command and control systems for government and enterprise customers.
The company increased its backlog to $6 billion by the end of June. Capital IQ estimates operating margins will increase to 20% this year, up from 18.2% in 2014, and rise to 21.6% next year.
MSI stock appears undervalued at current levels. On Aug. 5, Capital IQ raised its 12-month target price by $6 to $73. The upgrade followed a Q2 earnings report that beat expectations and news of a $1 billion investment from private equity firm Silver Lake Partners and tender offer to buy back $2 billion in stock.
Its analysts also increased their 2015 EPS estimate by 15 cents to $3.35, a 33% improvement over 2014. And they forecast a 16% jump to $3.90 in 2016.
MSI stock is in a broad consolidation with support just above $58 and resistance at $66. This pattern was constructed over 12 months and has held despite the market’s high volatility.
Prior to the recent market decline, MSI stock appeared to be gaining momentum with higher-than-average volume and numerous buy signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR). Even with three days of heavy liquidations in the broader market, shares held above their 50-day moving average at $60.24 and the October lows.
On Tuesday, MSI stock participated in the broader market rally, gaining 4.5% and closing above its 200-day moving average at $62.91.
Buy under $62 for a trade to $72 by December and a potential gain of 16%. Long-term investors may also consider adding MSI stock to their portfolios as a strong turnaround candidate with higher-than-average total return potential. The company pays an annual dividend of $1.36 per share for a forward yield of 2.2%.
