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Motorola Solutions Inc. (MSI - Analyst Report), a leading communications equipment manufacturer, declared excellent third quarter 2011 financial results, beating both the top and bottom line expectations. The solid performance was mainly on the back of solid demand across both Government and Enterprise segments.

Third Quarter Highlights

Quarterly total revenue was $2,105 million, up 10.3% year over year and higher than the Zacks Consensus Estimate of $2,091 million. Quarterly GAAP net income from continuing operation was $253 million or 45 cents per share compared with $211 million or a loss of 4 cents per share in the prior-year quarter. However, adjusted (excluding special items) EPS in the third quarter of 2011 was 65 cents, significantly ahead of the Zacks Consensus Estimate of 54 cents.

Quarterly gross margin was 50.4% compared with 50.5% in the prior-year quarter. Operating income in the reported quarter was $253 million, up 19.9% year over year. Quarterly operating margin came in at 12% versus 11.1% in the prior-year quarter.

Agreements of Analysts

Of the six analysts covering the stock in the last 7 days, none revised their estimates for the fourth quarter of fiscal 2011. Likewise, for first quarter of fiscal 2012, out of the five analysts covering the stock in the last 7 days, none revised their estimates.

For fiscal 2011, in the last 7 days, out of the six analysts covering the stock, none revised their estimates upward but one analyst reduced the EPS estimate. For fiscal 2012, none out of the six analysts covering the stock revised their estimates upward or downward over the last 7 days.

Currently, the Zacks Consensus EPS Estimate for the fourth quarter of fiscal 2011 is pegged at 74 cents, which indicates a loss of 9.05% year over year. Similarly, for the first quarter of fiscal 2012, the Zacks Consensus EPS Estimate of 46 cents remains at breakeven. However, for fiscal 2011, Zacks Consensus EPS Estimate is pegged at $2.26 indicating a profit of 135.76%. Likewise, for fiscal 2012, Zacks Consensus EPS Estimate stands at $2.56, reflecting a growth of 12.89%.

Magnitude of Estimate Revisions

During the last 7 days, the Zacks Consensus Estimates for fourth quarter 2011 and first quarter 2012 were in line with the current estimate of 74 cents and 46 cents per share, respectively.

However, for fiscal 2011, the Zacks Consensus Estimate was just a penny above the current estimate of $2.26. For 2012, the Zacks Consensus Estimate was again in line with the current estimate of $2.56.

Earning Surprises

Motorola Solutions produced an earnings surprise of 2 cents or 3.7%. The ongoing quarter and the first quarter of 2012 contain downside potentials of 2.70% and 2.17%, respectively (essentially a proxy for future earnings surprises).

However, fiscal 2011 contains an upside potential of 0.00%. For fiscal 2012, downward potential is 2.73%. 

Our Recommendation

Motorola Solutions is the largest developer of the public safety products commanding nearly half of the total U.S market. The company recently entered into an agreement with Verizon Wireless (VZ - Analyst Report) to install a standard-based public safety broadband network for mission-critical operations leveraging on the nationwide LTE network of Verizon.

We, thus, maintain our long-term Outperform recommendation onMotorola SolutionsInc. Currently, Motorola Solutions Inc.has a Zacks #1 Rank, implying a short-term Strong Buy rating on the stock.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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