Motorola (MOT) shares have finally gotten moving after an initial lull following the company’s excellent first-quarter earnings report and increased guidance. A combination of factors have led to the move in the stock including the announcment of a larger than expected share buyback. In my review of MOT’s first quarter earnings, I mentioned a share buyback was a possible catalyst. With the announcement and continuing good mometum in handset sales, MOT shares still have another 10% plus upside despite the recent move up….

…Here are some details on the buyback and favorable business trends:
Motorola (MOT) announced a $4 billion share repurchase to take place over three years. The repurchase is not a great surprise but the size is about double what I think the Street was expecting. Analyst commentary suggests that an accelerated timetable for buying shares could raise 2005 and 2006 estimates by 3 cents and up to 10 cents, respectively.
Beyond the dynamics of the repurchase itself, several other positives can be read into this news. First, management seems to be signaling confidence in its turnaround on the heels of a positive quarterly earnings surprise and increased guidance. Second, some investors have feared MOT would use its balance-sheet strength ($6 billion net cash) to make a large acquisition of something like Lucent Technologies (LU) or Nortel (NT). A larger-than-expected share buyback can certainly be read as a sign to the Street that no large deal is on the horizon.
This is great news for MOT and will continue to regain the company credibility and an improved multiple. Estimates are likely to rise slightly as well due to the buyback and the confidence it sends about intermediate-term fundamentals. MOT shares have room to move higher still.
And looking at those fundamnetals, Wall Street is noticing the good strength in the company’s operations. Since the company reported first quarter earnings, 32 of the 37 analysts that follow MOT raised their estimates. Consensus for 2005 now stands at $1.00, up from 93 cents prior to the report.
Since the earnings report, MOT has been upgraded by at least three brokers, including Lehman Brothers and Smith Barney. Positive buzz continues in research with several analysts very recently raising estimates above company guidance for the second quarter. These analysts say that channel checks indicate strong demand continues for the RAZR and from Nextel (NXTL) for iDEN phones.
Finally, MOT presented at a Wall Street conferences on May 10 and May 17 and maintained the bullish tone it sent on the 1Q05 call.