Nokia Oyj (ADR) (NOK) Plays Nice With Apple, Has 25% Upside

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Though Nokia Oyj (ADR) (NYSE:NOK) is no longer the world’s largest mobile maker, ceding that title to Samsung Electronics (OTCMKTS:SSNLF), but NOK stock doesn’t need that designation to be a profitable trade.

The Finnish tech giant, which has begun to focus on networking — data traffic management, in particularly — is poised to rebuild and rebrand its business to capitalize on new growth segments.

Although revenue in some segments are on the decline, the rate of the backsliding has drastically slowed. Meanwhile, NOK stock has responded in kind, up 31% this year. However, don’t even think about taking profits yet; I expect the NOK to reach $8 in the next 12 to 18 months, delivering a 27% return.

Reasons to Like NOK Stock

While $8, which Nokia has not seen in three years, might seem like an aggressive target, it doesn’t hurt that not only has Nokia just settled a long-standing patent dispute with Apple, Inc. (NASDAQ:AAPL), the company has also forged a new business relationship. Apple’s chief operating officer Jeff Williams said:

“We are pleased with this resolution of our dispute and we look forward to expanding our business relationship with Nokia.”

It’s not known what the extent of the business relationship is, other than that Nokia will supply “certain network infrastructure product and services” to Apple.

But the fact that both companies plan to “play nice” — with Apple selling Nokia’s digital health products in its retail and online stores — is a much-needed win for Nokia, especially given the reach of Apple’s iOS platform.

That, along with the companies saying Nokia will receive an “up-front cash payment” with “additional revenues during the term of the agreement,” underscores the potential revenue and earnings improvement prospects for Nokia.

While the sum of cash payment from Apple to Nokia was not disclosed, aside from the cash helping Nokia to fund its operations, investors can expect Nokia to use the money to help pay for its capital allocation strategy.

Better Revenue Diversification

Nokia’s Technologies unit (home to its patents) saw revenue surge 25% year over year in the most recent quarter. That growth was driven by a combination of factors, including income from patents and licensing. The company’s timely acquisition of Withings also played a big role.

Want another reason to like NOK stock? How about potential catalyst such as future product announcements.

 

At Mobile World Congress in February, Nokia promised a summer launch of rebranded Withings products as Nokia products. These will reportedly include an updated Health Mate app, which includes custom coaching programs for users created by fitness and medical professionals.

What’s more, to underscore its deep dive into the health industry, Nokia is also planning to launch a HIPAA-compliant Patient Care platform poised to enable sharing of critical healthcare data across the web.

The platform is already in trials within the U.S. If approved, Nokia would have established an important position in medical data where wearable devices like the Apple Watch may finally have a role to play in health. It seems Apple might need Nokia more than the other way around.

Bottom Line For NOK Stock

Currently trading at around $6.30, NOK stock is still cheap by most valuation metrics. Based on Monday’s closing price, Nokia is priced at 18.5 times fiscal 2018 earnings per share estimates of 34 cents, which slightly less than three points shy of the S&P 500 index. Combined with the Nokia’s 2.9% annual dividend yield, there are tons of reasons to be patient with NOK.

Assuming the company does earn 34 cents in 2018, that would translate to year-over-year growth of 43%.

From my vantage point, investors looking for a potential breakout investment should pounce on Nokia stock, which should trade at $8, assuming a 20 multiple to next year’s earnings, putting NOK in line with the S&P 500.

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


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/nokia-oyj-adr-nok-plays-nice-with-apple-has-25-upside/.

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