Jefferies & Co. reiterated its hold rating on shares of Motorola Solutions Inc (NYSE: MSI) ahead of first quarter earnings results, with a price target of $43.
We believe Motorola Solutions experienced a solid quarter but with some movement around contracts potentially impacting visibility slightly. We believe state and local officials have been in select cases laying-off first responders, said Peter Misek, an analyst at Jefferies.
While at the margin level this has had a dampening effect, the desire to use new technology to make the front lines more responsive and productive even with fewer people continues to contribute to business, in Misek's opinion.
Misek said retail same-store-sales, which are highly correlated to Motorola Solutions' enterprise business, have been stable. Overall, Misek expects only minimal changes to second quarter guidance and the full year outlook around the edges.
Misek said retail same-store-sales have showed some indications of recent softening, but volatility related to the Easter shift clouds the data. Rising gasoline and cotton prices provide headwinds as he enter the summer.
In Misek's view the rebound in state and local tax receipts has also begun to help close the yawning budget gaps and to some degree may continue to provide demand support for Motorola Solutions products and services.
We believe the single biggest driver for significant upside to our forecast is the LTE government network proposed by the Obama administration. We believe this about $10 billion network, devices, applications and services would be a huge potential boon to Motorola Solutions if President Barack Obama asks Congress for $10.7 billion for a wireless broadband public safety network, said Misek.
Misek said Barack Obama's plan is to free up 500MHz of spectrum (of which 115MHz has already been freed up) and auction it for $27.8 billion. Additional uses of the proceeds include $9.6 billion for deficit reduction and $3 billion for advanced wireless research and development (R&D), and ensure 4G coverage of rural areas (98 percent in five years).
Of the remaining $10.7 billion, $3.2 billion will be to reallocate the D Block (which is a band of spectrum that would be reserved and prioritized for public safety and not auctioned as called for under existing law); $7 billion for the build, and $500 million for R&D support.
We would be able to become more constructive if we could ascertain to any degree of confidence around the timing and scope of the LTE government network. Therefore given the current price we view the risk reward as balanced. We reiterate our Hold rating and $43 target, said Misek.
The brokerage estimates first quarter revenue of $1.976 billion for Motorola Solutions, and full year 2011 revenue of $8.15 billion.
Street analysts expect Motorola Solutions to earn 32 cents a share for the first quarter on revenue of $1.81 billion. For the second quarter, Street analysts predict profit of 51 cents a share on revenue of $1.99 billion.
Motorola Solutions stock closed Monday's regular trading down 0.23 percent at $44.10 on the NYSE.