Friday, July 5, 2019

With Nokia It Feels Like "2 Steps Forward, 1.9 Steps Back"

Nokia’s (NOK) share price is about the same as when I last wrote about this telecom equipment vendor, but there has been a fair bit of drama in between, with the shares going over $6.50 early in 2019 before a big sell-off into and through first quarter earnings. Along the way there have been optimistic sell-side pieces on the prospects for Nokia to benefit from Huawei’s troubles, but also some bearish pieces on Nokia’s tech roadmap relative to Ericsson (ERIC), concerns about whether Samsung could emerge as a more disruptive force, and whether Nokia will ever be able to execute on a consistent basis.

Of all those concerns, the execution issues concern me most, and first quarter results reminded everybody of just how consistently inconsistent this company has been. While I do think Nokia is relatively well-positioned in 5G and can look to gain some share on the back of Huawei’s troubles, the stock really needs a steady pace of financial improvement in the underlying business. Although I do think these shares could trade into the high single-digits if and when EBITDA margins move into the mid-teens and revenue growth picks up on 5G deployments, I think a fairer risk-weighted fair value range is in the $5.25 to $6.50 area for now.

Read the full article here:
With Nokia It Feels Like "2 Steps Forward, 1.9 Steps Back"

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