Nokia Corporation (ADR) (NOK) PT Raised, But Risk To NSN Earnings Seen

Nokia Corporation (ADR) (NOK) PT Raised, But Risk To NSN Earnings Seen
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Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is going through some big changes right now with the sale of its devices division. Morgan Stanley analyst Francois Meunier and his team have raised their price target for the company to €6 a share from €5.20 a share but maintained their Equal-Weight rating on the stock.

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Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) has three major catalysts which are expected over the next few months. The company is expected to close the deal with Microsoft Corporation (NASDAQ:MSFT) for the sale of its devices division. It will also be announcing the name of its next CEO and provide an update to its strategy going forward.

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However, Meunier believes consensus estimates for NSN’s growth and margins are “too bullish.” They also believe that restructuring is already priced into the company’s stock.

Taking a closer look at Nokia’s positive

The Morgan Stanley team estimates that Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will see €2.5 billion in capital returns through a share buyback over this year and next. They also expect the company to pay out €1.2 billion in dividends over the next couple of years. This would be a 50% payout ratio.

They also note that even if there is an early call on €800 million in bonds over 2015 and 2016, that still leaves Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) with between €8 billion and €8.5 billion in gross cash, which is more than historical levels and suggests “more firepower for the future.”

NSN estimates may be too high

However, they believe that organic declines into double digits over the last three quarters suggest that consensus forecasts for NSN may be too high. They note that those estimates suggest 7% growth in 2014 and say that this may be “too much of a V-shaped recovery.”

They believe China, which is 14% of NSN’s revenues, to be strong because the nation is rolling out LTE base stations. However, they say NSN is “underrepresented in LTE in several markets.”

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