Despite the macroeconomic headwinds, Finland-based leading network solution provider Nokia Oyj (NOK) delivered a strong full-year performance. Its fiscal year 2022 net sales grew 6% year-over-year in constant currency, driven by growth across all four business groups, with particular strength in Network Infrastructure, which grew 10%.
NOK’s fourth-quarter comparable operating profit rose to €1.15 billion ($1.26 billion) from €908 million ($970.18 million) last year, beating the €924.6 million ($987.92 million) mean forecast of 10 analysts polled by Refinitiv. Net sales grew 16% to €7.45 billion ($7.96 billion), beating estimates of €7.11 billion ($7.59 billion).
Looking ahead, while analysts expect net sales of €25.5 billion ($27.25 billion) in the fiscal year 2023, the company forecasts 2023 full-year net sales between €24.90 billion ($26.60 billion) and €26.50 billion ($28.31 billion), which implies growth between 2% and 8% in constant currency.
Additionally, the company finished its first phase of the buyback program, under which it repurchased 63963583 of its shares at an average price per share of approximately €4.69. The second €300 million ($320.54 million) phase of the share buyback program started in January and will end by December 2023.
Furthermore, NOK pays an annual dividend of $0.08 that yields 1.74% on the current market price, higher than the 4-year average dividend yield of 1.17%.
The company’s shares have gained 2% over the past five days, closing the last trading session at $4.77. It has a 60-month beta of 0.63.
Here’s what could shape NOK’s performance in the near term:
Positive Recent Developments
On February 20, NOK announced the launch of AVA Customer and Mobile Network Insights, a cloud-native analytics software solution that simplifies the collection and analysis of 5G network data to provide communication service providers (CSPs) with stronger and more cost-effective analytical capabilities.
The launch leverages NOK’s experience and leadership in analytics that enable CSP efforts to increase operational efficiency, improve network performance, and boost customer experience.
On February 14, NOK and Kyndryl Holdings, Inc. (KD), the world’s largest IT infrastructure services provider, announced a three-year extension and expansion of their global network and edge partnership, with a focus on developing and delivering industry-leading LTE and 5G private wireless services and Industry 4.0 solutions to customers worldwide.
KD and NOK established their global network and edge computing alliance in February 2022. The partnership has grown exponentially, with more than 100 engagements with global enterprises, from advisory or testing to piloting to full implementation across 24 countries.
On January 23, NOK announced that it had signed a new cross-license 5G patent agreement with Samsung, under which Samsung will make payments to Nokia for a multi-year period beginning 1 January 2023, following the expiry of the previous agreement at the end of 2022.
Robust Financials
During the fourth quarter that ended December 31, 2022, NOK’s net sales rose 16.1% year-over-year to €7.45 billion ($7.96 billion). Its gross profit grew 25.8% year-over-year to €3.19 billion ($3.41 billion). Also, its profit rose 363.5% year-over-year to €3.15 billion ($3.37 billion), while its EPS came in at €0.56, representing an increase of 366.7% year-over-year.
High Profitability
NOK’s trailing-12-month net income margin of 17.06% is 490.8% higher than the 2.89% industry average. Its trailing-12-month EBIT margin of 10.71% is 76.7% higher than the 6.06% industry average.
Furthermore, the company’s trailing-12-month ROCE, ROTC, and ROTA of 21.71%, 6.66%, and 9.90% are higher than the industry averages of 4.75% and 2.97%, and 1.36%, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, NOK is currently trading at 10.21x, which is 50.9% lower than the 20.78x industry average. Its 0.51x forward non-GAAP PEG ratio is 68.6% lower than the 1.62x industry average.
The stock’s forward Price/Book multiple of 1.10 is 72.6% lower than the industry average of 4.03x, while its forward EV/EBIT multiple of 6.61 is 61.5% lower than the industry average of 17.20.
Favorable Analysts Estimates
Street expects NOK’s revenue for the current quarter ending March 2023 to be $6.15 billion, indicating a 9.5% year-over-year growth. The company’s EPS for the same quarter is expected to increase 10.9% from the prior-year quarter to $0.08.
NOK’s EPS and revenue are expected to rise 7.7% and 1.2% year-over-year to $0.50 and $27.84 billion in the fiscal year 2024. Also, the company has surpassed the consensus revenue estimates in all the trailing four quarters, which is impressive.
POWR Ratings Reflect Solid Prospects
NOK has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NOK has an A grade for Value, in sync with its lower-than-industry valuation multiples.
Its B grade for Sentiment is consistent with favorable analysts’ expectations.
Within the B-rated Technology – Communication/Networking industry, NOK is ranked #12 among 49 stocks.
Click here to see the additional POWR Ratings for NOK (Growth, Stability, Quality, and Momentum)
Bottom Line
NOK generated strong cash flow, and year-long buyback programs should enhance shareholders’ returns.
Additionally, the company sees a year of growth ahead in 2023, despite the lingering macroeconomic headwinds.
Also, Wall Street analysts expect the stock to hit $7.05 in the near term, indicating a potential upside of 47.8%. Hence, NOK might be an ideal buy now.
How Does Nokia Corporation (NOK) Stack up Against Its Peers?
NOK has an overall POWR Rating of B. One could also check out these other stocks within the Technology – Communication/Networking industry with an A (Strong Buy) rating: PC-Tel, Inc. (PCTI), Extreme Networks, Inc. (EXTR), and Cisco Systems, Inc. (CSCO).
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NOK shares were unchanged in premarket trading Tuesday. Year-to-date, NOK has gained 3.11%, versus a 6.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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