This Billion-Dollar Acquisition Will Be Worth It for Ericsson Investors

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Swedish wireless carrier equipment specialist Ericsson (NASDAQ:ERIC) is known as a fast mover in the all-important 5G space. As businesses increasingly rely on speedy and reliable connectivity, Ericsson stock holders should continue to see consistent gains in the share price.

Ericsson (ERIC) logo on a smartphone screen.

Source: rafapress / Shutterstock.com

It’s no secret that Ericsson has tough competition in the form of a Chinese company known as Huawei. However, as Matt McCall and the InvestorPlace Research Staff have pointed out, the U.S. government is clamping down on Huawei, even to the point of putting pressure on America’s allies to shun the company.

So, that’s an advantage for Ericsson and its shareholders. On the other hand, I don’t want to encourage people to believe in Ericsson simply because it’s not Huawei.

It’s a solid company in its own right, and there’s more to owning Ericsson stock than just avoiding U.S.-China tensions. And indeed, there’s a fresh development that ought to convince any skeptic to put Ericsson on the top of his or her tech stock shopping list.

A Closer Look at Ericsson Stock

Long gone are the days of the dot-com bubble, when Ericsson stock traded north of $100. That was back in the year 2000, when today’s connectivity technology was merely a dream.

As we know in hindsight, Ericsson stock crashed hard after the dot-com bubble burst. Thankfully, Ericsson persisted as a company and reinvented itself as a world-class provider of 5G network equipment.

Furthermore, like many other tech-centered names, Ericsson stock rebounded mightily after the novel coronavirus crisis caused the market to crash. The stock reached rock bottom in March at $6.15, but the bulls are seeking to push the share price above $12 and eventually $15.

Unfortunately, the forward annual dividend yield provided by Ericsson stock is a paltry 0.68%. Therefore, investors will need for the share price to grow in order to generate any returns. And that, in turn, will require the company to expand and prove its value to the shareholders.

Capturing Market Share

One way for Ericsson to gain market share against competitors like Huawei is to align itself with complementary market leaders. That’s precisely what Ericsson’s done in the company’s recent big-ticket acquisition.

It would be no exaggeration to claim that this is the most impactful 5G-related deal of 2020. However, I’ll provide you with the facts and let you decide for yourself.

Reportedly, Ericsson has agreed to acquire leading U.S. provider of wireless 4G and 5G wide area network (WAN) Enterprise solutions Cradlepoint. Assuming nothing goes wrong, this $1.1 billion acquisition should be finalized during the fourth quarter of this year.

Granted, that’s a hefty price to pay. Still, the Cradlepoint deal ought to be well worth the price of admission. Wireless WAN connectivity, especially of the 5G variety, is the gold standard among businesses for speed, security and flexibility.

Beyond the Limits

Moreover, Cradlepoint is the perfect target acquisition in this space. That company, as Ericsson points out, is “strongly positioned in a market with underlying growth of 25-30%.”

Cradlepoint CEO and Chairman George Mulhern provided more detail on the value proposition that his company offers:

“We have led the way in bringing the power of cellular networks and technologies to enterprise and public sector customers – helping them connect beyond the limits of traditional wired WANs.”

Ericsson and Cradlepoint have actually collaborated before as their partnership goes all the way back to the days when 4G was new. Yet, this deal will provide Ericsson with full access to Cradlepoint’s wireless WAN solutions. Thus, it’s much more than just a pricey portfolio builder for Ericsson.

The Bottom Line

If you’re getting the impression that Ericsson is working towards global domination of the 5G space, that’s not a far-fetched notion. And the fact is, sometimes you have to pay a big price in order to gain market share.

Ericsson stock holders should appreciate the magnitude of the Cradlepoint acquisition and consider it a major catalyst, not only for the company but for the advancement of innovative 5G technology.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


Article printed from InvestorPlace Media, https://investorplace.com/2020/09/billion-dollar-acquisition-will-be-worth-it-for-ericsson-stock-investors/.

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