Reasons to Reconsider Investing in Zebra Technologies

Zebra Technologies Corporation (ZBRA) is facing challenges that make it a problematic investment option right now. The company's operational performance has not met investor expectations, particularly due to rising costs and significant debt levels.

Zebra Technologies, headquartered in Lincolnshire, IL, is recognized as a leader in enterprise asset intelligence solutions and automatic identification and data capture solutions globally. Its product and service offerings include cloud-based subscriptions and a variety of services, such as maintenance, repair, technical support, and managed professional services.

Currently, ZBRA holds a Zacks Rank of #5 (Strong Sell). Over the past three months, its stock has dropped by 23.5%, paralleling the trend seen in the industry.

Several factors are contributing to Zebra Technologies' current troubles, which are likely to persist moving forward.

Rising Costs

One of the critical issues facing Zebra Technologies is the growing cost of sales. In the fourth quarter of 2024, the company's cost of sales surged by 22.3% year over year, primarily driven by increased raw material costs. Additionally, selling and administrative expenses experienced an 11% year-over-year rise. If these escalating costs remain unchecked, they could severely diminish the company's profitability in upcoming quarters.

High Debt Levels

Another pressing concern is Zebra Technologies' high debt levels, which raise financial obligations and impact profitability. Over the last five years (from 2020 to 2024), ZBRA's long-term debt has grown at a compound annual growth rate (CAGR) of 18.9%. As of the end of the fourth quarter, the company's long-term debt stood at $2.09 billion. Given this high debt load, the cash and cash equivalents of $901 million do not provide adequate reassurance. Furthermore, the interest expenses in the fourth quarter reached a notable $98 million.

In the second quarter of 2024, Zebra Technologies completed a $500 million private placement of senior notes due on June 1, 2032. These senior notes come with a fixed interest rate of 6.5%, payable semi-annually. Although the new notes will assist in paying off a portion of its term loan, they will also add to Zebra Technologies' total debt burden.

Unfavorable Foreign-Currency Movements

Zebra Technologies operates in numerous regions, including North America, EMEA, the Asia-Pacific, and Latin America. This global presence exposes the company to various political, environmental, and geopolitical challenges. Ongoing conflicts, such as those between Russia and Ukraine and in Israel and Iran, may adversely affect its business performance. Additionally, the company’s exposure to international markets introduces social and environmental risks alongside foreign-exchange challenges. A stronger U.S. dollar could negatively impact Zebra Technologies' performance in overseas markets.

Alternative Investment Opportunities

Investors may want to consider alternatives with better financial standing. Some better-performing companies to explore include:

Allegion plc (ALLE), which currently holds a Zacks Rank of #2 (Buy). This company has delivered an average earnings surprise of 9.9% over the last four quarters. The Zacks Consensus Estimate for Allegion's 2025 earnings has also risen by 1.3% in the past 60 days.

Enersys (ENS), rated Zacks Rank #1. Recently, it had a trailing four-quarter average earnings surprise of 2.2%. The consensus estimate for ENS's fiscal 2025 earnings has increased by 10% over the last 60 days.

Applied Industrial Technologies (AIT), which holds a Zacks Rank of #2. This company has reported a trailing four-quarter average earnings surprise of 5.3%, with the consensus estimate for AIT’s fiscal 2025 earnings rising by 1.4% in the last 60 days.

Investment, Risks, Debt