Ericsson on Strong Sell - Analyst Blog

On May 17, 2014, Zacks Investment Research downgraded Ericsson ERIC to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Ericsson has witnessed downward estimate revisions following its lower-than-expected first quarter 2014 results. The strife between Ukraine and Russia (as company derived as much as $0.91 billion (SEK 5.9 billion) from business in these areas in the previous year) is expected to affect its business adversely. The shares of this wireless equipment provider have been range bound since Apr 23, after it reported its first quarter earnings. Additionally, given the expected decline in business in the upcoming quarter, the shares have further downside risk.

On Apr 23, 2014, Ericsson reported non-IFRS earnings of 14 cents per share (SEK 0.90) in the first quarter of 2014, which missed the Zacks Consensus Estimate by a penny or 6.7%.

Lower-than-expected results were mainly due to weakness in two of the company's business segments, namely, Networks and Global Services. Further, growth in its support solutions business had slowed down in the quarter. Further, revenues also plunged 9% year over year and 29% sequentially to $7.35 billion (SEK 47.5 billion). The decrease in revenues was due to continued sluggish performances of the company's two major mobile broadband coverage projects in North America. The prevailing weakness in Japan was also a dampener.

The Zacks Consensus Estimate for the current quarter decreased 5.6% to 17 cents per share over the last 30 days. For 2014, two of the six estimates were lowered over the last 30 days, which again pulled down the Zacks Consensus Estimate by 3.9% to 73 cents per share. For 2015, 4 of the 7 estimates were lowered in the last 30 days due to which the Zacks Consensus Estimate dropped 4.7% to 82 cents.

Ericsson provides telecommunications equipment and services to mobile and fixed network operators across the globe.

Other Stocks to Consider

Not all wireless equipment stocks are performing as poorly as Ericsson. We recommend Ubiquiti Networks Inc. UBNT, Polycom, Inc. PLCM and ShoreTel Inc. SHOR, all of which have a Zacks Rank #1 (Strong Buy).

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