Episode Details

Motorola Solutions, Inc. (MSI) Q2 2026 — Sales $3,133M UP 13% vs a ~$3,031M bar. Non-GAAP EPS $4.41 UP 24% vs a $3.85 bar - and $0.53 above the TOP of the company's own May guide of $3.82-$3.88. GAAP EPS $3.33 UP 10%. Record Q2 backlog $15.6B UP 11%. FY26 guide RAISED for the third time to ~$12.975B and $17.62-$17.72. Stock +7.6% to $471.25. Motorola Solutions grew revenue $368M this quarter. $243M of it was acquisitions and $35M was currency - the release says both figures by name. The business that already existed a year ago contributed $90M, or 3.3%. The company's own organic line is +5%, not the +13% headline, and +2% over six months. Meanwhile $0.25 of the $4.41 non-GAAP EPS was a $60M pre-tax IEEPA tariff refund. The beat and the third guidance raise are real. The growth rate underneath them is five percent. THE CALL: HOLD (3/5, A GREAT BUSINESS AT A FULL PRICE) — base-case value ~$416.0 vs ~$471.25 today. KEY METRICS: - CALL: HOLD 3/5, fair value ~$416 vs the $471.25 close (-11.8%) - BELOW the Street's $470 LOW target. The panel is 34 analysts: 24 Buy, 6 Hold, 4 Sell, $512.17 average (+8.7%). Base $416 (TTM FCF $3,050M growing 9% then 5%, 8.2% discount, 2.5% terminal, less $7,707M net debt and $1,500M for D-Fend, over 168.0M shares); bull $557; bear $328. Run it backwards: $471.25 needs free cash flow to compound 11.7% a year for five straight years. Our base already gives it 9%. - THE BEAT WAS REAL, AND AGAINST ITS OWN RAISED BAR. On May 7 Motorola guided Q2 to ~8.5% revenue growth and non-GAAP EPS of $3.82-$3.88. It printed +13.3% and $4.41 - fifty-three cents above the TOP of its own range. The full-year guide has gone $16.70-$16.85, then $16.87-$16.99, now $17.62-$17.72: three raises in a row, with consensus of $16.96 sitting on the May midpoint. Revenue guide went ~$12.8B to ~$12.975B. This is NOT a beat against a cut bar. - STRIP THE ACQUISITIONS AND 13% BECOMES 5%. Sales grew $368M, from $2,765M to $3,133M. The release states revenue from acquisitions was $243M and FX tailwinds were $35M - leaving $90M, or +3.3%, from the business that already existed. The company's own Non-GAAP-5 organic line is $2,890M vs $2,765M, +5%. Over six months organic revenue was $5,382M vs $5,290M: +2%. Segment margins did go UP - P&SI 31.4% from 26.7%, S&S 35.3% from 33.8%. - A QUARTER OF THE BEAT WAS A TARIFF REFUND. Footnote 2: the $4.41 and the 32.9% margin are inclusive of a $60M pre-tax IEEPA refund - $0.25 a share and 190bps. Ex-IEEPA the quarter is $4.16 (still +$0.31 vs the bar) at a 31.0% margin (+140bps). And the FY midpoint rose $0.74 ($16.93 to $17.67) while Q2 alone beat by $0.56 - the entire back half went up $0.18. Q3 revenue is guided +8% after a +13.3% quarter; Q3 EPS midpoint $4.415 is flat vs $4.41. - VALUATION AND WHAT Q4 HAS TO DO. EV ~$86.6B is 7.1x TTM revenue of $12,236M, 28.4x TTM FCF of $3,050M, 26.7x the guided $17.67, and 24.4x a marked-up ~$19.35 for 2027. FCF has compounded 19%/yr: $1,790M, $2,130M, $2,570M, $3,050M. Backlog is a record $15.6B, +11%. But H1 revenue was $5,848M and a +8% Q3 is ~$3,250M, so Q4 must hit ~$3,878M, +14.7%, to reach $12.975B. Inventory is $1,333M from $983M on memory-cost inflation. What to watch: UP: organic revenue growth back above 8%, a Q4 that actually delivers the implied ~$3,878M, or a 2027 guide that absorbs memory costs without a margin cut. BEAR: non-GAAP operating margin below 31% ex-refunds, backlog growth under 5%, or another quarter where two thirds of the growth is bought. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.