Investors looking for more good news from Nokia Corporation (NYSE:NOK) were doused instead with a splash of cold reality from Goldman Sachs Group, Inc. (NYSE:GS) – the firm slashed its rating on Nokia Corporation (NYSE:NOK) from Neutral to Sell, and set a price objective of $1.60. The stock is currently trading at $2.34, up 3.52 percent.
Goldman analyst, Simon Schafer’s main reason for the downgrade is the recent bump in the stock price based on heavily publicized insider buying and rumors of a takeover by Lenovo. The stock also rose after its recent Q2 results, and reports that the company was slowing its rate of cash burn. Investors were also factoring in an improvement in the company’s fortunes after the expected launch of its phones based on Microsoft’s Windows Phone 8 operating system. Just two days ago, we reported that Nokia Corporation (NYSE:NOK) was on course to the highest seven-day gain in more than 20 years in Helsinki trading.
Goldman probably views this rally as a dead cat bounce, and recommends it be used to sell: “Nokia has outperformed strongly since its 2Q12 report (+50%), driven by: a) lower cash burn (higher IPR income), b) reports of expected 2H12 device launches, c) management share purchases, and d) M&A speculation (Reuters, August 1). Our views on potential for a near-term turn-around and the likelihood of M&A are more sanguine, as reflected in our estimates and multiple methodology. We would therefore use recent strength as a selling opportunity in the context of our 12-month price target of €1.3.”
Schafer continues to keep his projections below the market consensus, convinced that Nokia will notch up higher losses on its smartphones and lower margins. He does not see much joy in the new launches by Nokia Corporation (NYSE:NOK), feeling that the competition, represented by Apple, Samsung, HTC, and Huawei will offer products that will likely steal Nokia’s thunder, and that the company will continue to see losses in market share, and that this trend may in fact accelerate.
Schafer shrugs off the M&A rumors, basically saying Nokia has nothing of real interest to an acquirer. “Nokia’s current fixed cost, employee and scale attributes in its mobile phone business (leading to large cash burn given our view of continuing market share erosion), currently make it a relatively unattractive acquisition target in the absence of clearer traction of its turnaround strategy.”
