Nokia Corp: Earnings Feed the Bear Case on NOK Stock

Nokia Corp (ADR) (NYSE:NOK) missed analysts’ estimates in the latest quarter because of weak demand for wireless networking equipment, sending NOK stock down sharply in what has already been a brutal year.

Nokia Corp (NOK) Earnings Feed the Bear Case on NOK StockAfter tumbling Thursday, Nokia stock is now off about 21% for the year-to-date and there are really no catalysts in sight.

Major carriers have largely built out their high-speed, fourth-generation networks and current demand is stagnant ahead of the eventual rollout of 5G technology.

The only thing NOK can really do right now is to wait for network operators to start the next big wireless deployment cycle and cut costs. To that end, Nokia pledged to squeeze more savings from its acquisition of Alcatel Lucent SA (ADR) (NYSE:ALU).

As analysts at Inderes told clients in a note:

“The merger execution is progressing, but the tough market situation is really weighing on earnings … There is no clear visibility into when earnings will improve.”

NOK Stock: Why?

Nokia stock has been a dog’s breakfast for almost a decade now, or ever since what was once the world’s largest wireless handset maker was left behind in the smartphone revolution. The company sold the cellphone business to Microsoft Corporation (NASDAQ:MSFT) two years ago, but the rump of Nokia networking gear continued its rampage of destruction to shareholder value.

Indeed, NOK stock has fallen by roughly a third since the deal closed in April 2014. Given the latest quarterly results, Nokia stock won’t break the downtrend anytime soon.

The Finnish company said the bottom line swung to a net loss of 665 million euros in the second quarter from a net profit of 347 million as a stand-alone company last year. After stripping out certain items, earnings fell by nearly 50% to 332 million euros. That was well short of analysts’ average forecast of 400 million euros, according to Reuters. Revenue declined 11% year-over-year to 5.67 billion euros.

In dollars, Nokia’s earnings of 4 cents a share fell a penny short of the Wall Street estimate, according to a survey by Thomson Reuters. Revenue of $6.41 billion missed analysts’ average forecast of $6.47 billion.

Nokia’s pitch to investors is basically one of patience. In a media release, CEO Rajeev Suri said:

“[We] expect to see slight sequential improvement in both net sales and operating margin in our networks business from the second quarter to the third, followed by significant improvement from the third to the fourth quarter.”

That’s hardly enough to make Nokia stock look compelling at current levels, especially since it’s going to take years before the company can print growth again.

The Alcatel-Lucent deal makes a lot of sense in that it allows Nokia to compete better against giant rivals. The downside is that the sprawling company is going to have to wait until the next network upgrade cycle. That’s not expected to begin for about four years.

Except for some selloffs and rallies, Nokia stock has been trading sideways for three years. There was nothing in the latest earnings report to break that spell anytime soon.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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