Nokia: A ‘Preferred’ Stock In The Sector

Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will post its third-quarter results on Oct. 23. In a report dated Oct. 14, 2014, Societe Generale analysts Andy Perkins and Peter Knox said they expect “a continuation of a number of positive trends.”

Momentum expected to continue

The company’s second-quarter results were impressive, and its solid performance is expected to continue in the third quarter as well. Societe Generale analysts expect the Finnish company to report sales of €2.94 billion, an increase of 1% from the third quarter of 2013 and 1% sequentially. Also the operating margin and adjusted earnings per share are expected to come in at 11.2% and €0.08 respectively.

Analysts expect to see turnover at the Networks division stop falling. Sales were down only 7% in the second quarter after declining 14% in the first quarter and 20% in the fourth quarter of 2013.

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The Finnish company is expected to return to growth, and the probable slowdown in U.S. operators’ capex will not have any significant impact on Nokia Corporation’s revenue growth due to the reason that North America contributed only 12% of revenues in 2013. Also, in the second quarter, the company guided for operating margins “at or slightly above 10%” for full fiscal.  However, the operating margins posted for the past quarter, in reality, had been better than expectations for a number of quarters. If in the third quarter, the company also posts good margin, it will build up the confidence level of investors, believe the analysts.

Nokia gets a Buy

They expect some changes in HERE or Advanced Technologies. Nokia and Samsung are working together to set new terms for royalties after Nokia shuttered its handset business, but the case is not likely to conclude until sometime in 2015. This implies that IP royalties will probably remain close to the run rate of €600m per annum, as was guided by the management. Analysts are not expecting big changes in these items, and therefore have not altered their forecasts into the results.

The Societe Generale analysts have maintained their Buy rating on Nokia with a price target of €7.25. According to them, a key risk to their target price is extremely aggressive bidding from Nokia’s Network division for new contracts.

For the analysts, Nokia “is preferred stock in the sector due to the mix of low US risk and potential upside from IP royalties in 2015.”