Nokia has been far underperforming Ericsson, but Nokia shares could be set to rebound.
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Nokia American depositary receipts are trading sharply higher Friday after Goldman Sachs analyst Alexander Duval turned bullish on the telecom-infrastructure provider, lifting his rating to Buy from Neutral, and setting a new price target of $6.50, up from $4.90.
Duval writes that the more bullish view reflects a combination of an improving outlook for 5G network infrastructure spending, progress on wireless product development, and an ADR price that has badly lagged peers. He notes that Nokia (ticker: NOK) over the last three years has lagged rival Ericsson (ERIC) by 75 percentage points, due to a combination of “lagging wireless-equipment product quality, [market] share losses, and negative EPS revisions.”
But the analyst adds that he sees upside from here.
For one thing, he says that 5G spending at European telcos like Vodafone and BT is poised to improve. He notes that “spectrum auctions have been progressing,” and that commentary from Ericsson suggests “an inflection in demand.”
Also, he says there is evidence that Nokia’s competitive position in wireless base stations for 5G is improving, suggesting that the company can “regain their place as a key tech enabler for cellular connectivity.” He notes that the company has expanded 5G related R&D by 40% over the last two years. Duval also notes that chip maker Marvell Technology (MRVL) recently said it is in the early stages of ramping up shipments to Nokia, which he thinks could imply an acceleration in its 5G business in coming periods.
And Duval seems potential for the company to gain market share from Chinese vendors such as Huawei, in particular in Europe, where telcos are restricted from using China-sourced infrastructure products.
On Friday, Nokia ADRs have jumped 6.3% to $5.47.
Write to Eric J. Savitz at [email protected]
