Follow this writer for long time readers, woke up Nokia (NOK) is not without disappointment. Value investment requires finding beaten-down, out-of-the-side stocks with upcoming positive catalysts to send them higher. With Nokia, markets are gradually recognizing multi-year revenue potential for 5G.
Nokia can also find ways for large opportunistic firms in size to unlock the value of the company. After complying with the US National Security Policy, governments are building communications infrastructure. Therefore, apart from the possibility of being bought out, there are several reasons why investors should still accumulate Nokia shares.
1) 5G contract
The Department of Defense awarded several companies with contracts worth $ 600 million. It is hiring companies to test its 5G communications technology at its five military sites. Nokia is one of several companies involved in 5G strategy. The plan includes 5G technology in combat aircraft.
Last week, on October 15, Fierce Wireless reported that Nokia would use Qualcomm’s (QCOM) 5G Rann platform. It will promote indoor small cells covering home and small enterprise locations. Nokia’s 5G smart node will have a Qualcomm FSM100xx modem ready next year in Q1 / 2021.
before this, Verizon (VZ) was famously awarded Samsung (SSNLF) 5G contract, which damages Nokia stock. Verizon will deploy 5G mmWave sites with Samsung Corning (GLW). Nevertheless, Nokia offers a better price point and better 5G delivery. For example, operators can “simultaneously address 5G network density and indoor coverage needs.”
When the Federal Communications Commission auctions its C-band spectrum on December 8, telecom providers can bid for 280 MHz in the 3.7–3.98 GHz frequency (5G).
Collectively, the events listed above are in compliance with US national security policy. Increasing tensions between the US and China (and to a lesser extent the rest of the world) will increase the importance of policy in the years ahead.
2) relative evaluation
Nokia is worth $ 23.5 billion by market capitalization, recently close to $ 4.20. Ericsson (ERIC) is valued at $ 36.95 billion. And although it pays a dividend that gives 1.46%, Nokia posted a strong positive operating cash flow in the previous quarter. It will do so again this quarter. This suggests that the company will reestablish its dividend at the earliest opportunity.
Below, you can see that Nokia has a higher score than Ericsson on price and profitability:
Source: SA Premium
I previously wrote that Ericsson is a better stock than Nokia (link for premium customers or DIY members). That opinion does not change. In this context, Nokia has a better amount of factor grades suggesting that a suitor would recognize its devaluation.
Below: Comparison of market cap over the last decade
3) wins more 5G contracts
Nokia lost 20% of its value since August 2020, when Samsung won a 5G supply deal with Verizon. Nevertheless, the market failed to notice that Nokia has continued to win large contracts ever since. It will supply communications solutions for NASA’s space mission to the Moon. The contract is worth $ 14.1 million. It is the first cellular network on the Moon. The victory confirms Nokia’s excellence in LTE / 4G reliability and high data rates. Additionally, the solution is inexpensive and uses less power.
On September 29, Nokia signed an agreement to supply Bt With 5G RAN. By doing so, it becomes BT’s largest equipment provider. Nokia will supply equipment and services to BT’s radio sites. And while it will have lower hardware margins due to contract size, 5G-based services and technical support services should benefit from this.
Nokia does not have a consistent record for beating analyst estimates. The company halved expectations in the last six quarters. It missed twice the earnings per share:
With regards Stock rover
For the next two months and the first half of 2021 SeasonsCity also works against Nokia shares:
Nokia falls faster in summer than it should (by seasonal pattern). One can see the paradigm as an opposite opportunity to buy shares.
An American firm wanting to cash in on 5G can buy Nokia for around $ 9. In the 5-year discounted growth exit model, use the following metrics:
Model etiquette of finbox
Assume peak EBITDA in FY 2022, mainly from 5G:
In the near term, Nokia may continue its rebound from the $ 4.00 support line ahead of the stock earnings report. If the company makes earnings that beat expectations under the new CEO, Pucca Lundmark, Nokia will eventually rise and stay there.
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Disclosure: I / We are tall Nokia. I wrote this article myself, and it expresses my own opinion. I am not getting compensation for this (other than Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.