Margin Expansion, Conservative Guidance Justify Nokia Upgrade, Says BofA Analyst

After the recent market sell-off, investors are looking around for attractive values to buy on the dip — and one analyst said Nokia Oyj (ADR) NOK is one of those deals.

The Analyst

Bank of America analyst Tal Liani upgraded Nokia from Neutral to Buy and raised the price target from the U.S. dollar equivalent of $5.60 to $6.53.

The Thesis

The recent jump in Nokia shares following fourth-quarter earnings was just the beginning of what the stock is capable of in 2018, given its opportunity to expand its operating margins from 10 percent to 14 percent by 2020, Liani said in a Monday note. 

Nokia's guidance is also on the conservative side, leaving plenty of room for upside surprise, the analyst said. 

“Nokia’s market guidance of negative 2-4-percent may prove overly pessimistic versus Ericsson’s [negative 2 percent], especially given [that] Nokia’s broad wireline portfolio brings more stability." 

An IP routing product cycle will likely begin in the second half of 2018, and cost-cutting after the Alcatel deal could help Nokia exceed operating margin guidance, Liani said. In 2017, Nokia nearly tripled its targeted cost-cutting goals.

Finally, Liani is optimistic 5G rollouts will help improve the capex environment throughout 2018. 

Nokia’s diversification following the Alcatel-Lucent acquisition gives the company a unique positioning in the market, and cost synergies, upcoming product cycles and an improving market all make the stock a compelling value at its current price, Liani said. 

Price Action

Nokia stock was up 0.37 percent at the time of publication Monday afternoon.

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Photo courtesy of Nokia.