We upgrade our recommendation on Motorola Solutions, Inc. (MSI) to Outperform. The company reported excellent financial results for the second quarter of 2011. The company is a market leader in the lucrative U.S. Public Safety market. While the federal budgetary pressures are anticipated to continue, the state and local level agencies have become a major growth driver for Motorola Solutions.
The company's business model remains compelling and we believe the company will be able to maintain its current top-line growth in the future primarily due to the critical nature of the public safety network in the U.S. and massive growth potential in the Middle East. Furthermore, Motorola Solutions boasts a healthy cash flow.
The company has also enhanced its shareholders value through a regular dividend policy and the initiation of a major share buyback program. We therefore, have upgraded our rating to Outperform with a target price of $49, based on 22x our fiscal 2011 earnings estimate, approaching the industry average.
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