Morgan Stanley: We're Upgrading Nokia On 'Reinventing'

In a report published Thursday, Morgan Stanley analysts upgraded the rating for

from Equal-Weight to Overweight, while raising the price target from €6.30 to €8.70. The analysts believe that the new Nokia story is largely "misunderstood." Investors seemed to have bought Nokia shares due to upside potential from patents with Samsung and Apple. With Nokia entering into a deal to purchase

, "the equity story of Nokia is changing to a long restructuring journey" and may not appear that appealing in the short-term. Hence, investor response to the deal has been mixed. "While the story is now different, we find it more appealing than before AND more appealing than Ericsson, its closest peer," the analysts said. In the report Morgan Stanley noted, "We previously argued that Nokia's product portfolio was narrow...With Alcatel, Nokia now has exposure to the #2 edge routing player, taking share in both edge and core, a strong footing in the consolidating optical market, and a duopoly position in the growing wireline access market." "In the US, Nokia will now supply to all big four wireless operators and now has enough scale to compete with Ericsson and Huawei on 5G. The larger Nokia will have doubled its patent portfolio too – which makes the patent story more credible. On a relative basis, we find this product portfolio stronger than Ericsson on paper in a consolidating market," the analysts wrote. While saying that the restructuring journey "is less risky than it looks," the analysts commented that Nokia's share price does not reflect the 25 percent accretion from the deal, the potential of 18 percent EPS CAGR from 2016 to 2019 and the €10bn cash pile.