A Buy and Sell Case For Motorola (MOT)

Motorola Inc. (NYSE: MOT) has been a troubled handset and communications and networking equipment provider for what is becoming longer than memory cares to record.  Its restructuring plans have never seemed to end in more than a decade.  We now have earnings behind us, and now come the analyst calls.  Where this gets interesting this morning is that we have two opposite calls.  Effectively, there is an upgrade to a BUY, and there is a downgrade to SELL.

Morgan Keegan upgraded the stock from a “hold” to a “buy.”  Yet, overseas firm Societe Generale downgraded the stock to “Sell” from “Hold.”  When you see such a divergence of opinions, the reasons almost cease to matter.  This is when you get two people to describe a cold day.  One will say it feels nice and one will say it feels to chilly.

It looks like Broadpoint AmTech also raised its rating to “BUY” from “Neutral.”

It was just on July 16 that Goldman Sachs decided the valuations and gains had peaked.  It kept its $7.00 target, but the analyst there said that the recovery was already priced in and reflects the boost from the Android phones coming in Q4.  And guess who Starmine just named as the top analyst for Motorola? Simona Jankowski… of Goldman Sachs.

With shares down less than 1% today at $7.16, we have to consider where this came from.  Motorola still has a $16.4 billion market cap.  Its 52-week range is $2.98 to $10.50.

Motorola shipped roughly 14.8 million handsets during the quarter, and its mobile sales were off by almost 45% to $1.8 billion over a year ago.  We saw a figure from Strategy Analytics showing that Motorola’s global market share was all the down to 5.4% in Q2 from over 9% the year before.   The total sales of the company fell about 30% to $5.5 billion from almost $8.1 billion a year ago.  Net income was close to $26 million, or $0.01 EPS, but that was on items and it had a one-penny per share loss outside of items.

The good news is that the company’s total cash at the end of the second quarter was $6.5 billion, a gain of $360 million from the prior quarter.  It generated $150 million of positive operating cash flow in Q2 and it does expect to post positive cash flow in the second half of the year.

While Motorola does have more Android phones coming late this year and into 2010, it is Apple’s iPhone and R-I-M’s BlackBerry products that are scoring so much business away.  Throw in a slate of other smartphones from Nokia and others, and the question really boils down to whether Motorola’s future base will be too small to even be relevant.

Sometimes the reasons behind upgrades and downgrades are just not as interesting as the timing of them.  But that makes a horse race.

JON C. OGG
JULY 31, 2009