Goldman Removes Ericsson From Sell List, Upgrades To Neutral

The brokerage said its updated analysis suggests that "the risk/reward is now less skewed to the downside than before the ytd underperformance of the stock."

However, Goldman still expects challenging wireless capex dynamics this year and remains cautious on second-quarter results. Goldman expects quarter-over-quarter revenue growth of 7.5 percent in the second quarter (i.e., sub-seasonal), whereas the consensus models 10 percent.

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"Our view remains that top-line trends will be tough in 2016, given further EM weakness and our expectation of continued low wireless volumes in regions including Korea and Europe," analyst Alexander Duval wrote in a note.

That said, Duval raised his 2016/17 EBITDA estimates by 6 percent/7 percent to factor in a greater likelihood that Ericsson will achieve its cost-cutting target (ex modems) of SKr7 billion by 2017.

"[O]ur 2016/2017 EBITDA estimates are now only 4 percent/1 percent below SME Direkt consensus, suggesting downside to earnings is now less likely to catalyze further underperformance than we assumed hitherto," Duval noted.

The analyst now sees gross margins of 33.7 percent/34.5 percent in 2016/17, up from prior forecast of 33.1 percent/33.7 percent. Duval also raised his 2016/17 EBIT margin estimates to 9.0 percent/10.7 percent from 8.2 percent/9.8 percent.

In addition, Duval increased his price target on the stock to SKr70/$8.5 from SKr64/$7.9.

ADRs of Ericsson closed Monday's regular trading session at $7.83. In the pre-market hours on Tuesday, shares were up 1.53 percent to $7.95.