Amidst major macroeconomic uncertainties, it can be challenging to identify the top-performing tech stocks that are poised for long-term growth. However, Nokia Oyj (NOK), a global leader in network infrastructure and telecom solutions, seems to be an attractive investment now. In this article, I will discuss the reasons why I am extremely bullish on this stock.
NOK repurchased 320,000 of its shares at an average price of €4.35 ($4.68) per share on March 21, 2023, at a total cost of €1,390,688 ($1,494,628). Following the transaction, NOK held 50,064,592 treasury shares. The repurchase is part of NOK’s share buyback program, which aims to return up to €600 million ($644.84 million) of cash to shareholders over two years.
The company has completed 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 ($5.04). The program's second phase started on January 2, 2023, and will end no later than December 21, 2023, with a maximum aggregate purchase price of €300 million ($322.42 million).
Also, NOK pays an annual dividend of $0.08 that yields 1.80% on the current market price, higher than the 4-year average dividend yield of 1.13%.
Furthermore, 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%.
For the fiscal year 2023, NOK predicts its net sales to be within the range of €24.90 billion ($26.76 billion) to €26.50 billion ($28.48 billion) in constant currency, indicating a growth rate between 2% and 8%.
The company’s shares gained 1.8% intraday, closing the last trading session at $4.65.
Here’s what could shape NOK’s performance in the near term:
Positive Recent Developments
On March 7, NOK announced that its Converged Charging software solution had been selected by Hrvatski Telekom to help the Croatian operator modernize on-line charging and better harness network monetization opportunities that can unlock new revenue streams.
Expanding the partnership with Hrvatski Telekom demonstrates NOK's ability to provide reliable and effective solutions to its customers, which should help to strengthen its brand reputation and position in the market.
On February 27, NOK announced a contract with MTN South Africa to offer 5G Radio Access Network (RAN) equipment. This is expected to enhance NOK’s market position in South Africa and assists MTN in providing greater 5G experiences to its users.
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 ($8.01 billion). Its gross profit grew 25.8% year-over-year to €3.19 billion ($3.43 billion).
Also, its profit rose 363.5% year-over-year to €3.15 billion ($3.39 billion), while its EPS rose 366.7% year-over-year to €0.56.
Discounted Valuation
In terms of forward non-GAAP P/E, NOK is currently trading at 9.82x, which is 51.8% lower than the 20.35x industry average. Its 0.49x forward non-GAAP PEG is 69.3% lower than the 1.60x industry average.
The stock’s forward Price/Book multiple of 1.07 is 70.2% lower than the industry average of 3.59x, while its forward EV/EBIT multiple of 6.55 is 59.6% lower than the industry average of 16.22.
Favorable Analysts Estimates
Analysts expect 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.
Furthermore, NOK’s EPS and revenue are expected to rise 7.5% and 1.4% year-over-year to $0.50 and $28.09 billion in the fiscal year 2024. Also, the company has surpassed the consensus revenue estimates in all the trailing four quarters, which is impressive.
High Profitability
NOK’s trailing-12-month EBIT margin of 10.95% is 135.5% higher than the 4.65% industry average. Its trailing-12-month net income margin of 17.06% is 531.2% higher than the 2.70% industry average.
Furthermore, the company’s trailing-12-month ROCE, ROTC, and ROTA of 21.71%, 6.80%, and 9.90% are higher than the industry averages of 3.67% and 1.97%, and 1.15%, respectively.
POWR Ratings Reflect Solid Prospects
NOK has an overall A rating, equating to a Strong 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.
NOK’s B grade for Sentiment is consistent with favorable analysts’ expectations. Moreover, it has a B grade for Growth, justified by its solid financial performance in the latest reported quarter.
Within the B-rated Technology – Communication/Networking industry, NOK is ranked #4 among 50 stocks.
Click here to see the additional POWR Ratings for NOK (Stability, Quality, and Momentum)
Bottom Line
NOK’s current share repurchase program highlights its commitment to returning cash to its shareholders and boosting shareholder value. Additionally, NOK's recent partnerships and contracts demonstrate its commitment to providing reliable and effective solutions, which should enhance its market position and unlock new revenue streams.
Moreover, NOK’s net income and EPS grew at CAGRs of 746.8% and 567.5% over the past three years.
Also, Wall Street analysts expect the stock to hit $7.05 in the near term, indicating a potential upside of 51.6%. 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 A. 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 Wednesday. Year-to-date, NOK has gained 0.51%, versus a 4.71% 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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