Motorola Solutions to Outperform

We upgrade our recommendation on Motorola SolutionsInc. (MSI) to Outperform. The company reported excellent financial results for the second quarter of 2011. Both top line and bottom line beat the Zacks Consensus Estimates. The company is a market leader in the lucrative U.S. Public Safety market. Whilet he federal budgetary pressures are anticipated to continue, the state and local level agencies have become major growth driver for Motorola Solutions.

We expect LTE expansion of public safety network to start in early 2012 in the U.S. The upcoming conversion of public safety radios to digital network technology from analog will act as a major product upgrade cycle for Motorola Solutions. Undoubtedly, at present, the most significant catalyst for Motorola Solutions is the proposed installation of 4G LTE networks for public safety. The U.S. government’s approval to prioritize the 700 MHz D-Block spectrum for public safety purposes will enhance Motorola Solutions’ top line in the near future. Management is looking for a business prospect of more than $1 billion in the next 3-4 years and another $3 billion - $4 billion opportunity within the next 5 years.

Motorola Solutions has entered into an agreement with Verizon Wireless, a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group plc. (VOD), to install a standard-based public safety broadband network for mission-critical operations leveraging on the nationwide LTE network of Verizon. This solution will offer public safety agencies real-time management and control, enhance nationwide roaming, and sharing of existing mobile broadband sites. Several industry researchers have estimated that the market size of Public Safety may reach $6.5 billion in 2014.

Motorola Solutions’ business model remains compelling and we believe the company will be able to maintain its current top-line growth in the future, primarily due to the critical nature of the public safety network in the U.S. and a massive growth potential in the Middle East. Furthermore, Motorola Solutions boasts a healthy cash flow. Recently, the company has enhanced its shareholders’ value through a regular dividend policy and the initiation of a major share buyback program.

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