Since last year, tech stocks have been under pressure due to the Fed’s aggressive rate hikes. However, the industry is expected to witness a strong recovery thanks to high demand arising out of rapid digitalization.
With the ever-rising demand for cloud solutions and faster network connectivity, it could be wise for investors to have a look at Espoo, Finland-based Nokia Oyj (NOK).
NOK reported a solid full-year performance. In the fourth quarter, NOK’s EPS and revenue came above Street estimates. Its EPS came 17.1% above the consensus estimate, and its revenue beat analyst estimates by 5.3%.
Keeping in mind the uncertain economic outlook, NOK’s President and CEO, Pekka Lundmark expects another year of growth, targeting full-year net sales of between €24.90 billion ($26.44 billion) and €26.50 billion ($28.14 billion), which implies a growth between 2% and 8% in constant currency.
The company is targeting a comparable operating margin of 11.5% and 14%. Due to its strong balance sheet position, the board proposed increasing the dividend to €0.12 per share.
NOK pays an annual dividend of $0.04 that yields 1.84% on the current market price. It has a four-year average dividend yield of 1.16%.
The company’s shares have gained 0.9% year-to-date, closing the last trading session at $4.68. Wall Street analysts expect the stock to hit $7.05 in the near term, indicating a potential upside of 45.7%.
Here’s what could influence NOK’s performance in the upcoming months:
Positive Recent Developments
On February 26, NOK announced that it had signed agreements with the world’s leading cloud infrastructure and server providers. It launched anyRAN, a new concept to help mobile operators and enterprises extend their options for building and evolving radio access networks.
On February 27, 2023, NOK announced its contract with MTN South Africa as one of its 5G Radio Access Network (RAN) equipment providers. President of Mobile Networks at NOK, Tommi Uitto, believes that this strengthens NOK’s market position in South Africa and helps MTN deliver superior 5G experiences to its subscribers.
Robust Financials
NOK’s net sales for the fourth quarter that ended December 31, 2022, increased 16.1% year-over-year to €7.45 billion ($7.91 billion). Its gross profit increased 25.8% year-over-year to €3.19 billion ($3.38 billion).
Additionally, its profit for the period increased 363.5% year-over-year to €3.15 billion ($3.35 billion), while its EPS came in at €0.56, representing an increase of 366.7% from the prior-year quarter.
Strong Historical Growth
NOK’s revenue grew at a CAGR of 2.2% over the past three years. Its EBIT grew at a CAGR of 35.4% over the past three years. In addition, its EPS grew at a CAGR of 744.3% over the same period.
Discounted Valuation
In terms of forward non-GAAP P/E, NOK’s 10.06x is 50.8% lower than the 20.43x industry average. Its 0.81x forward EV/Sales is 71.4% lower than the 2.83x industry average. Likewise, its 6.44x forward EV/EBIT is 61.8% lower than the 16.86x industry average.
High Profitability
In terms of the trailing-12-month EBIT margin, NOK’s 10.71% is 76.7% higher than the 6.06% industry average. Likewise, its 21.71% trailing-12-month Return on Common Equity is 336.8% higher than the industry average of 4.97%. Furthermore, the stock’s 7.09% trailing-12-month levered FCF margin is 5% higher than the industry average of 6.75%.
Positive Analyst Estimates
NOK’s EPS and revenue for the fiscal quarter ending March 31, 2023, are expected to increase 10.9% and 9.5% year-over-year to $0.08 and $6.15 billion, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Promising POWR Ratings
NOK’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, equating to a Strong Buy in our proprietary system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NOK has an A grade for Value, in sync with its discounted valuation. Also, it has a B grade for Growth, consistent with its strong historical growth.
Within the B-rated Technology – Communication/Networking industry, NOK is ranked #4 out of 49 stocks. Click here to see the additional POWR Ratings for NOK (Momentum, Stability, Sentiment, and Quality).
View all the top stocks in the Technology – Communication/Networking industry here.
Bottom Line
Despite the macroeconomic challenges, NOK finished 2022 on a strong note. The company remains optimistic about a strong showing this year, given its strategic partnerships and network transformation initiatives. Given its robust financials, high profitability, and favorable analyst estimates, it could be wise to buy the stock now.
How Does Nokia Corporation (NOK) Stack up Against Its Peers?
While NOK has an overall A rating, one could also check out these other stocks within the Technology – Communication/Networking industry with an A (Strong Buy) rating: PC-Tel, Inc. (PCTI), Extreme Networks, Inc. (EXTR), and Cisco Systems, Inc. (CSCO).
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NOK shares were trading at $4.80 per share on Friday morning, up $0.12 (+2.56%). Year-to-date, NOK has gained 3.75%, versus a 4.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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