Zebra Technologies (ZBRA): Shares forming a bullish 'pennant'

Posted Oct 25th 2007 12:57PM by Larry Schutts
Filed under: Earnings Reports, Caterpillar (CAT), Kimberly-Clark (KMB), AMR Corp (AMR), Technical Analysis, Stocks to Buy

Optical bar codes are on most of the products we buy in stores these days, and there is a firm in Vernon Hills, Illinois, that is a leader in making the machines that create the codes. The same company also provides the machines that make the radio frequency labels that are replacing barcodes.

Zebra Technologies (NASDAQ: ZBRA) provides printers, supplies and software used to produce bar codes, text and graphics on labels, cards, receipts, tickets and tags. It also makes EPC-compatible radio frequency identification (RFID) smart label printers/encoders for firms required to comply with major retail and government mandates. The company's products are used by businesses and governments in 100 countries around the world, including ninety percent of the firms in the Fortune 500. Major clients include AMR Corporation (NYSE: AMR), Caterpillar (NYSE: CAT) and Kimberly-Clark (NYSE: KMB).

Investors were pleased earlier in the week, when the firm reported Q3 EPS of 43 cents and revenues of $217.2 million. Analysts had been looking for 38 cents and $213.3 million. Management also guided Q4 EPS to 38-45 cents (43 cent consensus) and Q4 revenues to $215-$227 million ($228.62M consensus). The stock popped on the news and then passed into a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the issue with two "strong buys," two "buys" and four "holds." Analysts expect an eighteen percent growth rate, through the next year. The ZBRA Price to Book ratio (2.75), Price to Free Cash Flow ratio (19.08), Sales Growth rate (16.54%), Net Profit Margin (11.93%) and Return on Assets (9.95%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95 percent of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $32.93 and $42.50. A stop-loss of $32.25 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

Tags: fundamental analysis, FundamentalAnalysis, momentum, pennant, technical analysis, TechnicalAnalysis, ZBRA, Zebra Technologies, ZebraTechnologies