These two stocks are trading close to their all-time highs, despite disruptions caused by COVID-19. That’s because both companies supply vital products to their corporate and government clients. Recent acquisitions also brighten their long-term prospects.
MOTOROLA SOLUTIONS INC. $164 is a buy. The company (New York symbol MSI; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 169.8 million; Market cap: $27.8 billion; Price-to-sales ratio: 3.7; Dividend yield: 1.6%; TSINetwork Rating: Average; www.motorolasolutions.com) makes communications equipment such as radios for police and fire vehicles, as well as high-definition surveillance systems.
COVID-19 has limited Motorola’s ability to visit clients, and so secure new contracts. That offsets stronger demand for software and services (40% of total revenue).
As a result, its revenue in the three months ended June 30, 2020, fell 13.0%, to $1.62 billion from $1.86 billion a year earlier. Earnings before one-time items also declined 17.8%, to $1.39 a share from $1.69.
The company is now paying an undisclosed sum for Callyo, a cloud-based mobile applications provider for law enforcement. Its products help police respond faster to critical situations. They also let officers gather video evidence with a smartphone and share it with other investigators. About 20% of police officers in the U.S. now use Callyo’s products.
In addition to acquisitions, Motorola spends a high 10% of its revenue developing its own products.
The company’s sound balance sheet will support these investments. It held cash of $1.34 billion (as of June 30, 2020), and its long-term debt of $5.1 billion is a moderate 18% of its market cap.
Motorola now expects to earn between $7.40 and $7.52 a share for all of 2020. The stock trades at a 22.0 times the midpoint of that range. That’s a reasonable p/e in light of the company’s high research costs. The $2.56 dividend also gives you a solid 1.6% yield.
Motorola Solutions is a buy.
CINTAS CORP. $316 is also a buy. The company (Nasdaq symbol CTAS; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares o/s: 104.6 million; Market cap: $33.1 billion; Price-to-sales ratio: 4.7; Dividend yield: 0.9%; TSINetwork Rating: Average; www.cintas.com) designs and makes uniforms, then sells them to businesses, mainly in North America. It also offers related products and services such as office cleaning and first-aid kits.
In its fiscal 2021 first quarter, ended August 31, 2020, Cintas’s revenue fell 3.6%, to $1.75 billion from $1.81 billion a year earlier. Excluding acquisitions and foreign exchange rates, revenue at Cintas’s uniform rental business declined 5.4%, while revenue at the first aid and safety business rose 17.1%.
Due to savings from an acquisition, Cintas earned $2.78 a share in the quarter, up 19.8% from $2.32.
The company’s balance sheet is strong: its long-term debt of $2.29 billion is a low 7% of its market cap, and it held cash of $421.5 billion. The $2.81-a-share dividend is safe, and yields 0.9%.
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