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Motorola Solutions Inc. (MSI - Analyst Report) is scheduled to release its fourth quarter 2011 results on Wednesday, January 25, before the closing bell. The current Zacks Consensus Estimate for the fourth quarter is pegged at 74 cents, representing an annualized growth of negative 9.05%.

With respect to earnings surprises over the trailing four quarters, Motorola Solutionshas outperformed the Zacks Consensus Estimate in three of the last four quarters. The average earnings surprise was a positive 25.01%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the same period.

Third Quarter Recap

On October 27, 2011, Motorola Solutionsreported its third quarter 2011 financial results.

Quarterly total revenue was $2,105 million, up 10.3% year over year and exceeded 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 56 cents, surpassing the Zacks Consensus Estimate of 54 cents.

Quarterly gross margin was 50.4% compared with 50.5% in the prior-year quarter. Quarterly operating margin came in at 12% versus 11.1% in the prior-year quarter.

Agreement of Estimate Revisions

In the last 30 days, out of the six analysts covering the stock, none increased or decreased their estimates for the fourth quarter of 2011. Likewise, for the first quarter of fiscal 2012, out of the five analysts, none of the analysts raised the estimates but one analyst reduced the same for the period.

In the last 30 days, out of the six analysts covering the stock for fiscal 2011 and fiscal 2012, none increased the estimates for the period; however, one analyst slashed the EPS estimate for fiscal 2012.

Magnitude of Estimate Revisions

During the last 30 days, the current Zacks Consensus Estimate for the fourth quarter was in line with the previous estimate of 74 cents. For the first quarter of 2012, the current Zacks Consensus Estimate was a penny short of the previous Zacks Consensus Estimate of 45 cents. For fiscal 2011, the current Zacks Consensus Estimate was at par with the previous estimate of $2.26. However, for 2012, the current Zacks Consensus Estimates was 2 cents below the previous Zacks Consensus Estimate of $2.57.

Earning Surprises

The current Zacks Consensus Estimates for the ongoing quarter reflects a 0.00% upside potential while the first quarter of 2012 reflects a 15.56% downside risk (essentially a proxy for future earning surprises). Similarly, fiscal 2011 contain a 0.00% growth potential. However, 2012 has a downside potential of 12.55%.

Our Recommendation

Motorola Solutions continues to report solid financial results with huge margin improvement. Furthermore, the company’s business model remains compelling and we believe that the company will be able to maintain its current top-line growth going forward primarily due to the critical nature of the public safety network in the U.S. and massive growth potential in the Middle East.

However, the company is heavily dependent on government expenditures for its revenue.Therefore, a slowdown in the government expenditure due to budgetary pressures, particularly at the state and local level, may significantly jeopardize the company’s overall financials. Moreover,the decision of Sprint Nextel Corp. (S - Analyst Report) to gradually phase-out iDEN network is also a setback for the company as Motorola Solutions was expecting huge top-line growth from that project.We, thus, maintain our long-term Neutral recommendation for Motorola Solutions Inc.

Currently, Motorola SolutionsInc. has a Zacks #4 Rank, implying a short-term Sell rating.

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