Nokia released its latest earnings report on Thursday and surprised to the positive in revenue and earnings per share. But is the company out of the woods yet? A deeper dive into the numbers suggests that the results were more mixed than they look at first glance, suggests BMO Capital Markets analyst Tim Long.

Nokia Price Target Upped After Sales Beat Estimates

Nokia surges after strong earnings

In a report dated Oct. 29, Long said he sees Thursday’s earnings report as having a Neutral to Positive impact on Nokia. He has a Market Perform rating but raised his price target from $7 to $8 per share following the earnings report. The stock edged upward during regular trading hours at the New York Stock Exchange today, climbing as much as 1.57% to $7.43 per share. Helsinki-listed shares surged by more than 10% on Thursday following the report.

Nokia’s net sales were about €3 billion, and operating profits excluding items were €475 million.

Operating improvements at Nokia

Long noted that once again, Nokia Networks showed improvements as the operating margin moved higher thanks to improvements in gross profits on the company’s systems integration projects. Also continued cost-cutting measures and foreign exchange tailwinds helped boost the segment’s margin. However, the analyst also pointed out that revenues from the Networks business declined on a year over year basis.

Nokia’s Technologies patent licensing business remained flat, lacking the one-time benefits the company enjoyed in the first half of this year. Nokia reported the HERE maps business as discontinued operations as the segment is being sold.

Nokia- Alcatel deal to close early

Long tweaked his earnings per share estimates for this year and next, moving his 2015 estimate from €0.29 to €0.30 per share. For next year, his estimate moves down from €0.32 to €0.29 per share.

Looking past the operating results, he said the key highlight is the acceleration of the deal with Alcatel-Lucent. Regulators quickly approved Nokia’s acquisition of Alcatel, and the Finnish company said the $17 billion deal is now on track to close in next year’s first quarter, which is earlier than management had previously been planning on.

Nokia to return cash to shareholders

Because the deal is expected to close earlier, Nokia management expects to see operating synergies come into play a year before they previously expected. That should have a strong positive impact on the company’s cash position. Nokia is using the extra cash to reward shareholders with a $4.4 billion capital return program that includes dividends and share repurchases over the next two years.

Long said in order to become more constructive on Nokia, however, he wants to see signs of revenue growth.

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