Since last year, tech stocks have borne the brunt of the Fed’s aggressive rate hikes. However, the industry remains well-placed to gain in the long term due to constant innovations and the need for digital transformation across various sectors. Given this backdrop, buying shares of Finnish tech major Nokia Oyj (NOK) could be wise.
Let me explain why…
NOK reported solid fourth-quarter results thanks to “robust demand” amid macroeconomic uncertainty. Its EPS and revenue surpassed analyst estimates. Its EPS was 17.1% above the consensus estimate, and its revenue beat analyst estimates by 5.3%.
NOK President and CEO Pekka Lundmark said, “We said at the start of 2022 that it would be a year of acceleration, and we delivered what we promised. The Nokia team did a great job navigating geopolitical, economic, and supply challenges successfully executed our strategy, and delivered strong full year performance.”
“One of our strategic priorities is to broaden our customer base and grow in Enterprise, and I’m delighted we achieved 21% net sales growth in constant currency for the full year with 49% growth in Q4. There were important webscale wins in 2022 with momentum also continuing to build in our private wireless business where we added 45 customers in Q4,” he added.
Although NOK witnessed a slowdown in 5G spending by North American operators, the company ended fiscal 2022 strongly because of significant telecommunications and 5G radio access network (RAN) sales growth in India, winning deals from Bharti Airtel and Reliance Jio Infocomm. The company management attributed overall portfolio growth across Europe and “heavy growth” for its Mobile Networks division in India for its strong rise in revenues in the fourth quarter.
Despite the uncertain macroeconomic conditions, the company expects net sales in fiscal 2023 to come between €24.90 billion and €26.50 billion, implying a growth of between 2% and 8% in constant currency. NOK also expects a comparable operating margin between 11.5% and 14%.
Moreover, the company is expected to benefit from the Federal Communications Commission’s (FCC) new rules, which prohibit domestic telecommunication operators from acquiring and using network and other equipment from Huawei, ZTE, and a few other Chinese telecommunication vendors.
NOK pays an annual dividend of $0.04, which yields 1.80% on the current market price. It has a four-year average dividend yield of 1.15%.
NOK’s shares have gained 3.2% year-to-date to close the last trading session at $4.79. Wall Street analysts expect the stock to hit $7.05 in the near term, indicating a potential upside of 47.2%.
Here’s what could influence NOK’s performance in the upcoming months:
Positive Recent Developments
On January 23, 2023, NOK announced that it had signed a new cross-license patent agreement with Samsung following the expiry of the previous agreement at the end of 2022. The agreement covers NOK’s fundamental inventions in 5G and other technologies, and Samsung will make payments to NOK for a multi-year period beginning January 1, 2023.
Nokia Technologies President, Jenni Lukander, said, “Samsung is a leader in the smartphone industry, and we are delighted to have reached an amicable agreement with them. The agreement gives both companies the freedom to innovate, and reflects the strength of Nokia’s patent portfolio, decades-long investments in R&D, and contributions to cellular standards and other technologies.”
On February 26, 2023, NOK announced the global launch of Habrok at the Mobile World Congress. Its latest generation of cutting-edge AirScale massive MIMO radios for all mobile operators and enterprise networks.
NOK’s President of Mobile Networks, Tommi Uitto, “We are proud to unveil Habrok, our latest generation of industry-leading AirScale radios that deliver future-ready performance. Powered by our cutting-edge ReefShark chipsets, these optimized products redefine radio performance with ultra-fast 5G speeds and capacity where it is needed.”
Robust Financials
NOK’s net sales for the fourth quarter ended December 31, 2022, increased 16.1% year-over-year to €7.45 billion ($7.94 billion). Its gross profit increased 25.8% year-over-year to €3.19 billion ($3.40 billion). Additionally, its profit for the period increased 363.5% year-over-year to €3.15 billion ($3.36 billion), while its EPS came in at €0.56, representing an increase of 366.7% from the prior-year period.
Mixed Analyst Estimates
NOK’s EPS for fiscal 2023 is expected to decline 2.5% year-over-year to $0.47. Its EPS for fiscal 2024 is expected to increase 7.5% year-over-year to $0.50. Its revenue for fiscal 2023 and 2024 is expected to increase 1.2% each year-over-year to $27.44 billion and $27.76 billion.
Strong Historical Growth
NOK’s revenue grew at a CAGR of 2.2% over the past three years. Its EBIT grew at a CAGR of 36.4% over the past three years. In addition, its EPS grew at a CAGR of 744.3% in the same time frame.
Discounted Valuation
In terms of forward non-GAAP P/E, NOK’s 10.29x is 49.4% lower than the 20.34x industry average. Its 0.88x forward EV/Sales is 68.5% lower than the 2.79x industry average. Likewise, its 7.05x forward EV/EBIT is 58.3% lower than the 16.91x industry average.
High Profitability
In terms of the trailing-12-month EBIT margin, NOK’s 10.95% is 86.2% higher than the 5.88% industry average. Likewise, its 17.06% trailing-12-month net income margin is 484.9% higher than the industry average of 2.92%. Furthermore, the stock’s 14.62% trailing-12-month EBITDA margin is 30.4% higher than the industry average of 11.22%.
POWR Ratings Show Promise
NOK has an overall A rating, equating to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different 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 discounted valuation. Also, it has a B grade for Growth, consistent with its strong historical growth.
NOK is ranked #4 out of 49 stocks in the B-rated Technology – Communication/Networking industry. Click here to access NOK’s Momentum, Stability, Sentiment, and Quality ratings.
Bottom Line
NOK is trading above its 50-day and 200-day moving averages of $4.72 and $4.75, representing an uptrend. The company finished fiscal 2022 on a strong note, driven by telecommunications and 5G RAN sales growth. Moreover, the company remains optimistic about a strong showing this year, driven by its network infrastructure, mobile networks, and cloud and network services segments.
Given its robust financials, solid historical growth, discounted valuation, and high profitability, it could be wise to buy the stock now.
How Does Nokia Corporation (NOK) Stack up Against Its Peers?
NOK has an overall POWR Rating of A. Check out these other stocks within the 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 trading at $4.76 per share on Tuesday morning, down $0.03 (-0.63%). Year-to-date, NOK has gained 2.89%, versus a 4.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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