Finland’s Nokia Oyj (NYSE:NOK) is scheduled to release its second-quarter earnings on July 31. In April, the company’s Q1 earnings reflected the tension between two big forces: the novel coronavirus pandemic and the demand for 5G infrastructure. In that quarter, the pandemic’s effects began to be felt, and NOK saw its revenue slide by 2%. Since then, Nokia stock has gained 21% and is in positive territory for 2020.
However, the company warned that the biggest impact of the coronavirus pandemic was likely to be felt in Q2. And that could have a big impact on NOK shares.
Here’s what to expect when Nokia reports its second-quarter earnings.
A Tough First Quarter for Nokia Stock
Nokia ended 2019 on a sour note, with NOK shares dropping 24% in late October after the company cut 2019 and 2020 guidance. However, 2020 started off with Nokia stock beginning to claw back some of those loses.
By early February shares were trading at the $4.40 level, a 14% gain from the start of the year. The company had many positives that had the potential to kick off a new era of growth. Global 5G demand was ramping up and one of its primary competitors – China’s Huawei – was being blocked from entering many markets. After a disastrous decade that saw the company completely bumble its global smartphone lead, Nokia was positioned to come roaring back.
And then the Covid-19 pandemic struck. Like most stocks, NOK plummeted during the March market selloff. When it finally bottomed out at $2.42, it was down 45% from February levels.
The company released its Q1 results at the end of April, and the pandemic was showing its impact. Revenue was down 2% year-over-year for the quarter. The hit wasn’t in demand – telecom companies were still furiously building their 5G networks – but Covid-19 disrupted Nokia’s Chinese supply chain.
Second Quarter is Expected to be Worse
The most worrisome news for investors wasn’t Nokia’s first quarter numbers. It was the warning from the company’s CEO about what was coming next:
“We expect the majority of this COVID-19 impact to be in Q2 and believe that our industry is fairly resilient to the crisis, although not immune. We did not see a decline in demand in the first quarter. As the COVID-19 situation develops, however, an increase in supply and delivery challenges in a number of countries is possible and some customers may reassess their spending plans.”
In the U.S. market, cellular companies have continued their 5G rollouts. However there have been delays in some areas. For example, the Canadian government announced it was postponing 5G spectrum auctions until 2021 because of the pandemic.
In Q2 2019, Nokia saw revenue rise 7% and beat earnings estimates, delivering EPS of 6 cents (compared to the expected 3 cents). For this year, analysts are looking for Q2 EPS of 3 cents. However, don’t look for the company to deliver a positive earning surprise this year.
Bottom Line on Nokia Stock
Although Q2 may be grim, the good news is that Nokia is expecting the rest of 2020 to be an improvement. In fact, the company maintains it expects to see a “seasonally strong second half.” In addition, as Investorplace’s Larry Ramer points out, the company’s new CEO (with a proven track record and a decade of experience at Nokia during its “golden” years starting in 1990) takes the helm on Aug. 1.
Of the 31 investment analysts polled by CNN Business, Nokia stock is a consensus buy, with a $5 median 12-month price forecast. If their projections are in the ballpark, NOK won’t be performing anywhere near the level of 5G rival Ericsson (NASDAQ:ERIC) – which has seen its stock post 30% gains so far in 2020 – but that would still represent a tidy 15.2% upside.
We should have a good idea of how bad the pandemic has hit Nokia when the company releases those Q2 numbers at the end of the week.
And keep a close eye on the guidance for the second half of 2020. If the company remains optimistic, that will help to minimize the impact on NOK and could nudge those 12-month price forecasts higher.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.