Zebra (ZBRA)

Enterprise data capture company Zebra Technologies (NASDAQ:ZBRA) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 11.3% year on year to $1.31 billion. The company expects next quarter’s revenue to be around $1.28 billion, close to analysts’ estimates. Its non-GAAP profit of $4.02 per share was 11.1% above analysts’ consensus estimates.

Company Overview

Taking its name from the black and white stripes of barcodes, Zebra Technologies (NASDAQ:ZBRA) provides barcode scanners, mobile computers, RFID systems, and other data capture technologies that help businesses track assets and optimize operations.

Companies in this sector, especially if they invest wisely, could see demand tailwinds as the world moves towards more IoT (Internet of Things), automation, and analytics. Enterprises across most industries will balk at taking these journeys solo and will enlist companies with expertise and scale in these areas. However, headwinds could include rising competition from larger technology firms, as digitization lowers barriers to entry in the space. Additionally, companies in the space will likely face evolving regulatory scrutiny over data privacy, particularly for surveillance and security technologies. This could make companies have to continually pivot and invest.

Zebra Technologies competes with Honeywell (NASDAQ:HON) and Datalogic in the barcode scanning and mobile computing markets, Avery Dennison (NYSE:AVY) and Sato in printing solutions, and Impinj (NASDAQ:PI) in RFID technology. In the machine vision space, it faces competition from Cognex (NASDAQ:CGNX) and Keyence.

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $5.11 billion in revenue over the past 12 months, Zebra is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because finding new avenues for growth becomes difficult when you already have a substantial market presence. To expand meaningfully, Zebra likely needs to tweak its prices, innovate with new offerings, or enter new markets.

As you can see below, Zebra’s sales grew at a sluggish 2.7% compounded annual growth rate over the last five years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Zebra’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.7% annually.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Zebra’s organic revenue averaged 2.7% year-on-year declines. Because this number is better than its normal revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline results.

This quarter, Zebra reported year-on-year revenue growth of 11.3%, and its $1.31 billion of revenue exceeded Wall Street’s estimates by 1.4%. Company management is currently guiding for a 5.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 4.2% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Zebra has managed its cost base well over the last five years. It demonstrated solid profitability for a business services business, producing an average operating margin of 13.3%.

Analyzing the trend in its profitability, Zebra’s operating margin decreased by 1 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Zebra generated an operating profit margin of 14.9%, up 1.4 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Zebra’s weak 3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q1, Zebra reported EPS at $4.02, up from $2.84 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Zebra’s full-year EPS of $14.69 to grow 5.1%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Zebra has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 12.6% over the last five years, quite impressive for a business services business.

Taking a step back, we can see that Zebra’s margin dropped by 1.8 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal it is in the middle of an investment cycle.

Zebra’s free cash flow clocked in at $158 million in Q1, equivalent to a 12.1% margin. This result was good as its margin was 2.6 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Zebra historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 13.7%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Zebra’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Zebra reported $879 million of cash and $2.33 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.11 billion of EBITDA over the last 12 months, we view Zebra’s 1.3× net-debt-to-EBITDA ratio as safe. We also see its $104 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Zebra beat analysts’ organic revenue and EPS expectations this quarter. On the other hand, its EPS guidance for next quarter and the full year fell short of Wall Street’s estimates. Overall, this was a mixed quarter, but the market seems to be rewarding the strong quarter and overlooking the tepid guidance. The stock traded up 5.9% to $258.02 immediately after reporting.

Updated: July 11, 2025 at 12:16 AM EDT

When considering an investment in Zebra, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Zebra falls short of our quality standards. To kick things off, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months. And while its impressive operating margins show it has a highly efficient business model, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its organic revenue declined.

Zebra’s P/E ratio based on the next 12 months is 21.3x. At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $334.53 on the company (compared to the current share price of $330).