Zebra Technologies Corporation ZBRA has failed to impress investors with its recent operational performance due to the adverse impacts of the increasing cost of sales and high debt level.

Based in Lincolnshire, IL, ZBRA is the leading provider of enterprise asset intelligence solutions in the automatic identification and data capture solutions industry throughout the world. The company has a diversified portfolio of products and solutions that includes cloud-based subscriptions and a full range of services like maintenance, repair, technical support, as well as managed and professional services.

ZBRA currently carries a Zacks Rank #5 (Strong Sell). In the past three months, the stock has lost 23.5%, in line with the industry.

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Let’s discuss the factors, which are likely to continue taking a toll on this company.

Increasing Costs: Zebra Technologies has been dealing with the adverse impacts of high costs and expenses. In the fourth quarter of 2024, the company’s cost of sales increased 22.3% year over year due to high raw material costs. Also, selling and administrative expenses rose 11% year over year. Escalating costs and expenses, if uncontrolled, may negatively impact profitability in the quarters ahead.

Long-term Debt: High debt levels raise financial obligations and hurt the company’s profitability. ZBRA’s long-term debt in the last five years (2020-2024) witnessed a CAGR of 18.9%. At the end of the fourth quarter, the company’s long-term debt totaled $2.09 billion. Considering Zebra Technologies’ high debt level, its cash and cash equivalents of $901 million do not look impressive. Also, interest expenses in the fourth quarter remained high at $98 million. 

In the second quarter of 2024, the company completed the offering of $500 million senior notes due June 1, 2032, in a private placement. The senior notes have a fixed interest rate of 6.5%, which is payable semi-annually.  Although the current notes offering will help pay down a share of its term loan, we believe it will also add to Zebra Technologies’ existing debt balance.

Forex Woes: ZBRA operates across diverse regions (North America, EMEA, the Asia-Pacific and Latin America), exposing it to certain political, environmental and geopolitical issues. The ongoing conflicts between Russia & Ukraine and Israel & Iran may harm its business and operational results in the long run. Moreover, the company has considerable exposure to overseas markets. This brings social and environmental risks as well as forex woes. A stronger U.S. dollar might weigh on the company’s overseas business performance.

Stocks to Consider

Some better-ranked companies are discussed below.

Allegion plc ALLE currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ALLE delivered a trailing four-quarter average earnings surprise of 9.9%. In the past 60 days, the Zacks Consensus Estimate for Allegion’s 2025 earnings has increased 1.3%.

Enersys ENS presently sports a Zacks Rank of 1. The company delivered a trailing four-quarter average earnings surprise of 2.2%.

In the past 60 days, the consensus estimate for ENS’ fiscal 2025 earnings has increased 10%.

Applied Industrial Technologies AIT presently carries a Zacks Rank of 2. AIT delivered a trailing four-quarter average earnings surprise of 5.3%.

In the past 60 days, the consensus estimate for AIT’s fiscal 2025 earnings has inched up 1.4%.

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Zebra Technologies Corporation (ZBRA) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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