Last night Motorola Solutions (MSI) reported December quarter results that topped expectations for both its top and bottom lines, and guided its revenue for both the current quarter and all of 2023 ahead of consensus forecasts. The key for us is the end market exposure at Motorola Solutions, which is 75% government and public safety with the balance from enterprise markets.
On the earnings conference call last night, Motorola’s management made it very clear the funding environment for its public safety business is strong with robust demand for public safety and enterprise security solutions. In particular, it’s North American business, a key market for Action Alerts PLUS holding Axon Enterprise (AXON) , was up 18% year over year.
Moreover, amid questions over the debt ceiling and government spending, Motorola shared that the bulk of its orders received during the quarter were from state and local institutions in the form of multi-year deals. That confirms the recent “flush” comments about those institutions from Fed Chair Powell and bodes rather well for Axon when it reports its quarterly results on March 2.
We’ve been sitting on the sidelines with AXON shares, waiting for confirmation of the public safety funding environment. Even though supply chain issues remain, something that could weigh on margins in the first half of 2023, the outlook as evidenced by Motorola’s comments remains robust. We also expect Axon’s Taser business to benefit from the shift to non-lethal weapons.
As investors look for avenues of more predictable and stable growth for the year ahead, we strongly suspect AXON shares will attract investor attention like the way United Rentals (URI) and Vulcan Materials (VMC) have as investors focused on the Biden Infrastructure Bill.
With that in mind, we will do the following:
— Lift our price target for AXON shares to $220 from $185.
— Raise our rating on AXON shares to One from Three.
We will also use today’s market weakness to make the following trade:
— Buy 150 shares of AXON at or near $183.50. Following the trade, AXON will account for roughly 2.0% of the portfolio.
(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade’s executed price here. Be sure to toggle the chart to sort by Purchase Date.)
