Zebra's demand and replacement cycle are recovering, while RFID and machine vision broaden its growth runway, but memory costs continue to constrain the near-term outlook

Overview

This report summarizes the key takeaways from Morgan Stanley's meeting with Zebra's investor relations management. The report believes that market-share gains in the company's core businesses, pricing power, and device replacement demand are converging, while RFID and machine vision expand the long-term opportunity into additional automation workflows. However, memory costs, tariffs, retail exposure, and the need to validate new businesses lead the firm to maintain its Equal-weight rating and $360 price target for now.

Core views

First, Morgan Stanley believes Zebra is evolving from a traditional supplier of mobile computing, scanning, and printing equipment into an integrated automation platform covering more workflows. These three core product categories still account for approximately 80% of the business, and investor relations management stated that their market share has increased for more than a decade, supported by sustained investment, premium-product performance, and deep customer relationships. Acquisitions have further expanded the product portfolio into RFID and machine vision, enabling the company to serve industries including retail, transportation and logistics, manufacturing, and healthcare. The company also views artificial intelligence as an extension of this strategy, using on-device intelligence and real-time data to automate frontline workflows. Zebra has relationships with approximately 80% of Fortune 500 companies, which helps it understand customer pain points and develop product roadmaps while enabling it to combine mobile computing, barcode scanning, RFID, and machine vision solutions for different industries. Second, the report believes the combined effects of pricing, market-share gains, and replacement demand can make growth more durable. FY26 organic growth is expected to be approximately 7%, including roughly 2 percentage points from pricing. Product upgrades enabled by Wi-Fi 7, 5G, and updated chipsets could also gradually raise average selling prices. Customer stickiness is high, and Zebra can typically command a double-digit price premium, with competition focused more on productivity and reliability than simply on low prices. Management has observed multiple positive indications that replacement of equipment purchased during the pandemic is beginning, with the trend expected to become more apparent after entering 2027. The transportation and logistics sector may also replace equipment deployed during the pandemic. Meanwhile, the normalization of large-customer activity over the next 12 months and improving retail and distribution capital expenditures have made the demand environment healthier than before. Memory remains the most significant near-term operating constraint. Management reiterated that memory is expected to generate approximately $120 million in incremental costs, of which approximately $90 million is intended to be recovered through direct price increases, with the remainder mitigated through measures such as productivity improvements. The company is also qualifying additional memory sources, while its capital-light manufacturing model provides some flexibility to adjust. Although the report is encouraged by the recovery in demand, it still wants greater clarity on the impact of memory costs and the degree of cost recovery before becoming more constructive on the stock. Third, RFID and machine vision are viewed as the largest adjacent growth opportunities. As tag costs decline and real-time inventory accuracy improves, RFID's return on investment can support more use cases, with adoption expanding from apparel and retail into logistics. Machine vision is at an earlier stage of development for Zebra. Following the Matrox acquisition, management is focused on accelerating commercial execution, expanding channel relationships, and adopting a land-and-expand model as manufacturing demand recovers. The report believes Zebra can combine barcode scanning, RFID, machine vision, and mobile computing to provide customers with multiple paths to workflow automation and may benefit from the increasing adoption of physical AI and supply-chain automation. However, Morgan Stanley still wants to see tangible traction in RFID and machine vision before adopting a more positive view. The earnings model shows ModelWare EPS rising from $15.82 in FY25 to $21.16 in FY26, $22.53 in FY27, and $24.62 in FY28; the previous figures in the table were $15.70, $21.12, $22.16, and $24.11, respectively. On the quarterly trajectory, the report lists EPS of $4.01, $3.61, $3.87, and $4.32 for Q1 through Q4 of 2025, respectively. Actual EPS for Q1 and Q2 of 2026 was $4.75 and $6.34, while Q3 and Q4 estimates are $4.86 and $5.22. Estimated EPS for Q1 through Q4 of 2027 is $5.24, $5.67, $5.69, and $5.94. The operating-driver table forecasts revenue growth of 15.2%, 6.4%, and 5.3% for FY26, FY27, and FY28, respectively; EBITDA growth of 26.6%, 2.6%, and 5.9%; and EPS growth of 33.8%, 6.5%, and 9.3%. Free cash flow is projected at $1.026 billion, $1.018 billion, and $1.153 billion, respectively, with operating margins of 22.6%, 21.7%, and 21.9%. These forecasts reflect a strong recovery in FY26 followed by a normalization of growth. On valuation, the report maintains its Equal-weight rating and $360 price target, reflecting a cautious stance relative to the August 21, 2026 closing price of $368.51. The base case applies approximately 16x to FY27 EPS of about $22.53, implying $360. Another valuation passage in the report also cites 16x FY27 EPS of approximately $23.11. This multiple is slightly below the S&P 500 and Zebra's three-year average, as retail exposure, macroeconomic uncertainty, recent tariff impacts, and residual memory constraints offset the long-term automation opportunity. The bull case is $475, applying approximately 19x to normalized FY27 EPS of $25, with the multiple closer to the stock's five-year average trading range. The bear case is $240, applying approximately 12x to normalized FY27 EPS of about $20 and assuming the company cannot mitigate tariff impacts to the same extent and that retail exposure falls out of favor with investors. The base case depends on broader improvements in retail, manufacturing, and healthcare demand, resilient regional demand, and a growing pipeline of deployment projects, but these factors are not yet sufficient to support meaningful multiple expansion.

Analysis framework

The report first draws on a meeting with Zebra's head of investor relations to outline the company's strategy of expanding from core devices into an integrated automation platform. It then analyzes operating drivers including pricing, market share, device replacement, memory-cost recovery, and supply sources, followed by an assessment of the expanding applications and commercialization stages of RFID and machine vision. Finally, Morgan Stanley incorporates these views into its ModelWare earnings forecasts and constructs bull-, base-, and bear-case scenarios using FY27 price-to-earnings multiples to determine its rating and price target.

Methodology notes

• Valuation MethodPE/PEG valuation

  FY27 price-to-earnings valuation

  The report derives price targets by multiplying FY27 earnings per share by different price-to-earnings multiples and compares those multiples with the S&P 500, Zebra's three-year average, and its five-year trading range.

• Industry/Sector Analysis FrameworkPrice-Volume Decomposition

  Decomposition of growth drivers across pricing, market share, and replacement demand

  The report attributes 2 percentage points of FY26 organic growth of approximately 7% to pricing and assesses the durability of growth by also considering market share, device replacement, and product upgrades.

• Valuation Method

  Bull-, base-, and bear-case risk-reward scenarios

  The report adjusts FY27 earnings capacity, the degree of tariff mitigation, the breadth of demand, and valuation multiples to produce three price scenarios of $475, $360, and $240.

• Corporate Fundamentals and Financial Framework

  Morgan Stanley ModelWare forecasting framework

  The report uses ModelWare to generate annual and quarterly forecasts for EPS, revenue, EBITDA, free cash flow, and operating margin, thereby linking operating assessments to valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Zebra Technologies Corporation (ZBRA.US)

  The report believes the company could benefit from core-device replacement, sustained market-share gains, pricing, and the expansion of automation demand driven by RFID and machine vision.

  Strengths

  More than a decade of sustained market-share gains in its core businesses, a double-digit pricing premium, high customer stickiness, relationships with approximately 80% of Fortune 500 companies, and a combinable portfolio of mobile computing, scanning, printing, RFID, and machine vision products.

  Weaknesses

  Near-term pressure from memory costs, retail exposure, and tariffs; machine vision commercialization remains at an early stage, and the incremental traction of RFID and machine vision has yet to be further demonstrated.

  Comparison

  The base-case valuation multiple is slightly below the S&P 500 and Zebra's three-year average; the bull-case multiple of 19x is closer to the company's five-year average trading range.

  Risks

  Economic and tariff pressures, fluctuations in spending by major customers, market-share losses, delayed recovery in semiconductor demand, and potential substitution of the mobile computing business by smart devices.

Key data

• Stock RatingEqual-weightIndustry view is In-Line
• Price Target$360.00Typically corresponds to a 12- to 18-month target horizon
• Closing Price$368.51As of August 21, 2026
• Market Capitalization$17,898mmCurrent market capitalization stated in the report
• 52-Week Price Range$386.23-$199.0552-week high-to-low range stated in the report
• Core Business Contributionapproximately 80%Combined contribution from mobile computing, scanning, and printing
• Fortune 500 Customer Coverageapproximately 80%Used to understand customer pain points and support the product roadmap
• FY26 Organic Growthapproximately 7%Including a 2-percentage-point contribution from pricing
• Incremental Memory Costs and Recovery Through Price Increasesapproximately $120mm／approximately $90mmIncremental costs of approximately $120 million, with approximately $90 million expected to be recovered through direct pricing
• FY25-FY28 ModelWare EPS$15.82／$21.16／$22.53／$24.62Previous table values were $15.70／$21.12／$22.16／$24.11, respectively
• FY26-FY28 Revenue Growth15.2%／6.4%／5.3%Model forecasts
• FY26-FY28 EBITDA Growth26.6%／2.6%／5.9%Model forecasts
• FY26-FY28 Free Cash Flow$1,026mm／$1,018mm／$1,153mmModel forecasts
• FY26-FY28 Operating Margin22.6%／21.7%／21.9%Model forecasts
• Bull/Base/Bear Price Scenarios$475／$360／$240Applying approximately 19x, 16x, and 12x FY27 earnings, respectively
• Active Institutional Ownership55.2%Ownership positioning data in the report
• Hedge Fund Industry Long/Short Ratio and Net Exposure2.1x／33.6%Industry positioning metrics stated in the report

Impact & implications

The report believes Zebra's growth profile is gradually shifting from primary reliance on traditional equipment cycles toward a combination of core-product replacement, sustained market-share gains, and adjacent automation businesses such as RFID and machine vision. Customer relationships, pricing premiums, and cross-product combinations help preserve the resilience of the core business, while replacement of equipment deployed during the pandemic may strengthen demand entering 2027. However, memory costs have not yet been fully offset by price increases, while tariffs and macroeconomic exposure to retail also constrain multiple expansion. Machine vision and RFID still need to demonstrate commercial traction. Morgan Stanley therefore recognizes the long-term growth trajectory but maintains a balanced valuation conclusion at present.

Risks

• Memory is expected to add approximately $120 million in costs, while direct price increases are expected to recover only approximately $90 million, leaving a residual impact that could pressure earnings.
• Economic headwinds or tariffs could weaken spending across core verticals including retail, manufacturing, transportation and logistics, and healthcare.
• Spending by major customers could become volatile, or the company could experience significant market-share losses.
• A slower recovery in semiconductor-related demand could further weigh on the machine vision business.
• Retail exposure, macroeconomic uncertainty, and tariff impacts could continue to constrain valuation multiples.
• Smart devices could pose a substitution risk to Zebra's mobile computing business.

What to watch

• Monitor whether replacement of equipment deployed during the pandemic becomes more evident entering 2027.
• Track whether e-commerce and omnichannel investment activity can be sustained and whether retailers accelerate omnichannel spending.
• Monitor equipment replacement in transportation and logistics and the degree to which large-customer activity normalizes.
• Track RFID's expansion into logistics and whether machine vision channel development and the land-and-expand strategy can generate earlier traction.
• Monitor whether the qualification of alternative memory sources, recovery through direct price increases, and productivity improvements can cover the remaining costs.
• Monitor whether growth shifts back toward cyclical drivers and the pace of recovery in manufacturing and semiconductor demand.
• Track whether Intelligent Edge solutions can achieve scaled adoption.
• Monitor the competitive impact of smart devices on the mobile computing business.
• Monitor the degree of tariff easing and the company's actual ability to mitigate tariff impacts.