Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) appears to be on the mend, according to analysts at RBC Capital Markets. They say the company is turning into “a cleaner entity” and that its operational focuses in Networks, HERE maps and Technologies is improving.

Nokia Corporation (NOK) Price Target Increased By RBC
Source: Pixabay

In their report dated Sept. 19, 2014, analyst Mark Sue and associate Ameet Prabhu said they are maintaining their Outperform rating but bumping their price target up a bit from $11 to $12 per share. Their price target is based on a sum-of-the-parts analysis.

Nokia Networks benefits from capital expenditures

The RBC Capital team said that currently, Nokia’s Networks division is seeing benefits from wireless capital expenditures in the U.S. Sprint Corporation (NYSE:S), T-Mobile US Inc (NYSE:TMUS) and China Mobile Ltd. (NYSE:CHL) (HKG:941) are all spending on their wireless networks.

They note that Europe’s LTE build-out is still in the early phases. However, they add that other Chinese carriers, including China Telecom Corporation Limited (ADR) (NYSE:CHA) (HKG:0728) and China Unicom, may present incremental opportunities for Nokia.

Networks’ margins may improve

The analysts say that up until now, operating expenditure cuts have driven Nokia’s margin improvements in its Networks division. They think a higher mix of “IMS / core, coverage, software” could drive gross margins, however. They estimate that Nokia’s operating margins will head toward the high end of the 5% to 10% range.

Because of the steady upgrades and possibilities for margin improvements, they slapped a $6 per share value on Nokia’s Networks segment.

Monetization approaches for Technologies segment

The RBC team noted that the total addressable market for Nokia’s intellectual property is expanding. A resolution to the arbitration with Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) is expected next year. They also expect debate to continue with Apple Inc. (NASDAQ:AAPL) over the value of Nokia’s intellectual property.

They note that the company’s essential patents cover a wide range, including wireless and Wi-Fi devices. They see connected devices as offering an incremental opportunity for greater monetization. However, they say that it might be difficult for the company to monetize China in intellectual property, noting QUALCOMM, Inc. (NASDAQ:QCOM)’s recent challenges.

They have not yet included a “meaningful” increase in legal expenses, although they expect lose expenses and also research and development expenses to increase in the long term. They currently have a value of $2.60 per share on Nokia’s Technologies segment.

HERE may transition into pure licensing

The analysts believe Nokia’s HERE maps division will eventually turn into a pure licensing play, compared to Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s advertising model for its Maps. They note that HERE Is at breakeven currently, but they expect margins to gradually improve due to efficiency and scale.

They predict that higher auto revenues and average selling prices, caused by updates to maps and real-time data, will predict a recurring revenue stream and improve Nokia’s overall profitability. They value HERE at about 70 cents per share.

Nokia must improve its capital structure

The RBC Capital team says there’s room for Nokia to improve its capital structure as well. They think the company is rather over-capitalized and being conservative on its balance sheet. Of course this is understandable because of the company’s recent history and failures in the smartphone market.

They also say that in addition to a steady dividend increase and repurchase continuity, they expect Nokia to be “prudent” in mergers and acquisitions. They’re estimating about $2.25 per share in forward cash.