This company connects America's first responders
July 16, 2019

From Stansberry Research:

In 2017, Houston was being pummeled...

Hurricane Harvey was in the process of dumping more than 50 inches of rain on the city.

City officials would eventually call for a mandatory evacuation. The storm drove more than 30,000 people from their homes... and left millions more stranded.

The storm and the devastating floods it caused cost Texas more than $180 billion... And it resulted in thousands of stories of displaced citizens.

Responding to disasters like Harvey is a massive endeavor. The cost and complexity can be enormous. To give you an idea, more than 31,000 emergency responders were deployed to help with the initial response to Harvey.

In situations like this, one capability is more important than funding, management, or any other factor.

It's communication.

Coordinating a massive effort across a geographic location is impossible without the ability to relay information between the ground and the command center.

Today's company provides the vital tools to ensure these communication lines perform when needed...

We're talking about Motorola Solutions (NYSE: MSI). When a government agency, municipality, or large project wants consistent communications, it goes to Motorola Solutions. The Houston Police Department is just one example.

Whether it's police, firefighters, or 911 operators, Motorola Solutions dominates the market for public safety communications.

The basic technology behind this is the land mobile radio system, or LMR.

When local police officers radio license-plate numbers back and forth, they are chatting over an LMR system. Motorola owns the market. It has more than 70% of the market share, according to data from FactSet.

It's not cutting-edge technology, but that's by design. These systems need to maintain 100% uptime during all sorts of conditions. If you're a cop, you don't want to lose connection when you request backup.

So virtually all municipalities have stayed with boring-but-reliable LMR systems. This means they buy an expensive central system to connect the organization... And the radios and peripheral devices needed to set it all up are provided by Motorola.

The great thing about this business is its stability. First, competition is scarce. Second, once an organization has a Motorola LMR system, it tends not to switch its central unit. It's just too costly. So they keep buying new radio units.

If we (or other countries) beef up border patrols, disaster readiness, police presence, or military operations, LMR systems will be handling the communications... And Motorola will be providing them.

The systems generate real, recurring cash flows.

But the company is not just cashing in on radio tech that you may consider outdated. It's preparing for some big changes...

For years, Motorola has been working to move its revenue streams away from selling equipment toward providing software and services to its customers.

This is where the money is these days. A subscription service keeps the revenue flowing, often on long-term contracts.

Today, about 30% of Motorola's sales come from its services and software.

For example, you can run a 911 center with Motorola software. These used to be just call centers, but now they process body-camera footage, gunshot detection, and text messages. Motorola provides video and crime data analytics.

This is the future of police work... and the future for Motorola.

Software and services are a higher-growth business with thicker profit margins. Selling a device is great... But selling a recurring service is better. You make one sale, and you get revenue for years to come.

Motorola measures these future sales with its backlog, or sales agreed upon but yet to be completed. Its backlog currently stands at $10.4 billion – a record high for the company... And its backlog for services grew 14% in the first quarter of this year, and now stands at about $7 billion.

With services, the backlog means multiyear contracts for ongoing services. The growth gives us a great idea of how Motorola will fare in the future.

In the last two years, the stock has more than doubled in price... And it recently hit a fresh multiyear high. So far in 2019, MSI has soared almost 50%. That vastly outperforms the S&P 500 Index's gain of "only" 20%.

Motorola is leading the charge when it comes to emergency communication systems... And the company is shifting its focus to keep its dominant position in a changing industry.

Natural disasters are sure to continue to hit states along the Gulf of Mexico (hurricanes), California (wildfires), and the Midwest (floods). When they do, Motorola will be there to provide key equipment for first responders.

Sometimes investing is simple. 

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