Markets started noticing the progress of Nokia’s (NYSE:NOK) 5G developments as stock markets staged a V-shaped recovery. Nokia stock bottomed at below $2.50 in mid-March but is now up 85% from 52-week lows.
That is twice the return over the S&P 500’s 41.4% bounce from the lows. On June 19, the company completed a successful trial of 5G over the C-band spectrum.
This sets the stage for strong customer order growth ahead. The spectrum auction starts later this year in Dec. 2020.
First on 5G on C-Band Network Lifts Nokia Stock
Nokia announced on its press release that it completed its first successful U.S.-based 5G trial in the C-band spectrum. It achieved speeds of over an incredible 1 Gbps using a commercial 5G AirScale portfolio.
Current shareholders, including this author, patiently waited for positive news like this one to give Nokia shares a strong lift. The company already supplies 5G services to all U.S. carriers, but its customers may want to increase its order size or push for a more aggressive launch schedule.
The company proved that its Nokia AirScale 5G base station is ready for C-band, which is between the 3.4 GHz and 4.2GHz range. Nokia said that this band “is a crucial resource for operators to offer the best mix of 5G network capacity and coverage to subscribers across the U.S.”
The U.S. is scheduled to hold a spectrum auction for the C-band at the end of this year. As customers deploy these networks, Nokia may book orders to reflect the installation taking place in the first half of 2021.
Given that the stock market is forward-looking, the stock could take on fresh 52-week highs as Nokia raises its revenue guidance and increases its cash flow forecast. The latter point is critical in the company restoring its dividend.
Nokia eliminated its dividend last year.
Customers that already deployed spectrum bands through Carrier aggregation will want to add the 5G services. Nokia said that it “is already shipping each of these solutions in high volumes to leading carriers around the world.” So, the company faces a low risk of any installation challenges.
Successful Live Trial of RAN Intelligent Controller
On June 18, Nokia and AT&T (NYSE:T) ran a successful trial of the Radio Access Network Intelligent Controller. Tested on “AT&T’s 5G mmWave network in New York City,” the trial met its test goals.
Nokia said that “both companies tested the RAN E2 interface and xApp management and control, collected live network data using the Measurement Campaign xApp, the neighbor relation management using Automated Neighbor Relation (ANR) xApp, and tested RAN control via the Admission Control xApp – all with zero interruption to the live commercial network.”
The results should accelerate its growth profile. Nokia expects long-term earnings will grow 13.3%, below the 14.6% of the industry. But early results from its network tests suggest that the market is discounting its increased growth rates in the quarters ahead.
Nokia has a fair value of close to $7.00 a share. In a 5-year discounted cash flow model: Gorden growth exit, apply the following metrics:
|Discount Rate||8.5% – 7.5%||8.00%|
|Perpetuity Growth Rate||1.5% – 2.5%||2.00%|
|Fair Value||$5.94 – $7.75||$6.70|
|Upside||37.3% – 79.1%||54.70%|
Data courtesy of finbox. Click on the link to change assumptions and resulting price target.
The 2% growth rate is a modest assumption. At an 8% discount rate, the stock has a nearly 55% discount from its $4.33 closing price.
Nokia is in a period of seasonal strength, with minimal downside risks of a ~4% drop in August. But in Dec. 2020 – Feb. 2021, the stock offers monthly gains of 4%. So, accumulate shares at current levels ahead of others who will do the same.
Disclosure: As of this writing, the author owns shares of Nokia.