Every year, the markets produce conspicuous opportunities that are nearly split down the middle between bulls and bears. These are companies that are not only mired in a seemingly perpetual tug-of-war, they have strong evidence for either side. In 2017, that company is Nokia Oyj (ADR) (NYSE:NOK).
At the beginning of the year, covering analysts for Nokia stock were evenly split. Eight analysts ranked it either as a “hold” or “underperform.”
The other eight were either a “buy” or a “strong buy.” As the months wore on, however, the markets became decidedly more ambiguous toward NOK stock. In the current month, 11 analysts have joined the “hold” boat, up from seven in January.
But following analyst recommendations have not always yielded the best results from Nokia stock. The company has exciting developments in the pipeline, both internally and product-wise. More convincingly, NOK stock has responded well, rising to 13% year-to-date. It doesn’t quite erase the 30% loss that NOK suffered last year, but it’s a respectable start.
With the Nokia earnings report for the first quarter set for a Thursday morning release, should investors jump on board?
Nokia’s Earnings Outlook Is Favorable
On paper, the former mobile telecom king faces reasonable expectations, with its per-share target set at 3 cents. This is a penny lower from last year’s forecast, which was missed also by a penny.
Against prior earnings performances, NOK stock is somewhat of a mixed bag. Fiscal year 2015 produced a perfect record, while 2016 was two up, two down. However, the most recent fourth-quarter report produced an earnings surprise of nearly 59%. Therefore, momentum is running high, and on-the-fence investors will eagerly look forward to any substantive signs of a recovery.
Top-line growth offers a decidedly transparent picture. Sales figures for the past four quarters hit the higher end of the consensus spectrum, except for Q4, which fell slightly short of the consensus. For Q1, analysts forecasted a range of $5.5 billion at the low to $6.1 billion at the top. Consensus comes in at $5.7 billion, $600 million down from the year-ago forecast.
The good news for Nokia stock is that barring unusual surprises, the company should hit its mark. The bad news is that Nokia earnings don’t always translate into market profitability.
For instance, the recent beat in Q4 has rewarded shareholders. However, most of the reports in 2015 and 2016 ended up punishing traders with a shorter-term outlook.
Too little, Too Late for Nokia Stock?
Moving forward, the fate of Nokia stock will depend upon the aforementioned developments. But as InvestorPlace contributor Tom Taulli mentioned, the turnaround will take some time. The specific areas that NOK is targeting, such as virtual reality and the Internet of Things, are intensely competitive. Stalwarts in the sector — Facebook Inc (NASDAQ:FB) and International Business Machines Corp. (NYSE:IBM) come quickly to mind — are not going to make it easy.
The sector that Nokia once dominated, mobile devices, is now fraught with uncertainty and risk. According to InvestorPlace’s Richard Saintvilus, the company will release the Nokia 9, a premium smartphone priced at $699. That puts NOK stock on a collision course with Apple Inc. (NASDAQ:AAPL) — not the most ideal situation.
It may not be entirely fair but you have to ask — what took so long?
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So not only is NOK introducing a premium smartphone, they’re doing so at the mature end of the S-curve. How that will boost Nokia stock is beyond me.
The company’s turnaround strategy is either misguided or will take considerable patience. Patience in the markets is a rarity, however, especially since NOK stock is currently riding its second chance. Nokia earnings will rely on more than just solid numbers. They must have the backing of investors or risk slipping yet again.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
