Next Stop for Nokia Corp (ADR) Stock: $5 a Share!

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After reporting a weak third quarter, Nokia Corp (ADR) (NYSE:NOK) pleased investors this time around by reporting that it would raise its dividends. It will go up from 17 cents to 18 cents a share.

Next Stop for Nokia Corp (ADR) Stock: $5 a Share!

Despite other disappointments in its fourth quarter, investors bid NOK higher last week. What may follow for Nokia shares is the $5 level.

NOK Stock Earnings Rundown

Weak Network Division: Sales at NOK’s Network division fell 14% year-on-year. The market remains weak but Alcatel-Lucent lifted the performance of the unit. And Nokia maintained a strong gross margin of 40.6%. Operating margin of 8.9% for the full year is within the guidance NOK provided.

Nokia Technologies: NOK’s earnings did not benefit from IP payments from Samsung Electronics (OTCMKTS:SSNLF) in the fourth quarter. The company expanded its IP licensing agreement. This is a move that should boost revenue for the technologies unit.

Cashing in on Apple: Just as Apple Inc. (NASDAQ:AAPL) is cashing in on patents by suing Qualcomm, Inc. (NASDAQ:QCOM) for high IP royalties, Nokia is suing Apple for infringing on Nokia patents. With 50 patents involved in the suit, expect Nokia at least getting something from Apple. Also, Nokia said:

“As of today, in actions across 11 countries in Asia, Europe and the US, there are now more than 50 Nokia patents in suit, covering technologies such as display, user interface, software, antenna, chipsets, video coding, as well as 3G & 4G cellular standards. Apple has also filed certain complaints against Nokia.”

At 1.15 times sales, investors are not pricing a litigation win in favor of Nokia. Even if NOK is successful, it will take years before the court makes a ruling. Nokia is not the only stock trading at low valuations. Ericsson (NASDAQ:ERIC) is valued at 0.7 times sales. ERIC reported quarterly results that only met earnings expectations. It earned seven cents per share in the quarter, compared to 13 cents per share for Nokia stock, which beat the consensus by five cents.

On its press release, NOK highlighted the $115 billion IP portfolio it holds, thanks to its ownership in Alcatel-Lucent. This further suggests that markets are ignoring the potential for more monetization of IP in the years ahead.

Risks to NOK Stock

Equity and Expenses: Of the nearly $20.9 billion in equity, over half of that amount is goodwill and intangibles. In the fourth quarter, R&D expenses amounted to $1.34 billion. Most of that was due primarily to the amortization of intangible assets from the Alcatel-Lucent acquisition.

Smartphone Sales Unknown: Nokia did not forecast revenue for its technologies division. But the company’s base case for revenue from patent and brand licensing will total around $863 million annualized. Any new licensing agreement will raise that base case. The networks division represents the bulk of Nokia’s business. The mediocre news is that sales are growing in the single digits in the best-case scenario. It expects the primary addressable market falling in the full year (2017). Higher competition and pricing pressure for networking goods will continue to exert negative pressure on the business.

Takeaway on NOK shares: Headwinds are a worry for Nokia shareholders but the market has low expectations for the company. An early settlement with Apple on IP would bring much-needed revenue for the former smartphone giant. Higher customer spending on 5G and networking gear will give the company a lift this year. That will lead to a minimum $5 share price. That is, a forward price-earnings ratio of above 20 times, for Nokia’s stock.

As of this writing, Chris Lau was long NOK stock.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get actionable insight to achieve strong investment returns.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/nokia-nok-stock-next-stop-five-dollars/.

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