Credit Suisse Upgrades Alcatel-Lucent, Nokia, Downgrades Ericsson

• Analysts at Credit Suisse upgraded shares of Alcatel Lucent SA (ADR) (NYSE: ALU) and Nokia Corporation (ADR) (NYSE: NOK) to Outperform ahead of their merger.
• Analysts at Credit Suisse also downgraded shares of Ericsson (ADR) (NASDAQ: ERIC) to Underperform.
• The analysts noted a ‘challenging time' for the wireless capex cycle.

Ahead of Nokia's $16.6 billion acquisition of Alcatel-Lucent, Kulbinder Garcha and Achal Sultania of Credit Suisse upgraded shares of European-listed Nokia to Outperform from Neutral with a price target raised to €9 from a previous €7. Shares of European listed Alcatel-Lucent were also upgraded to Outperform with a price target raised to €4.95 from a previous €3.85.Concurrent to the upgrades, the analysts also downgraded European-listed shares of Ericsson to Underperform from Neutral with a price target lowered to SKr75 from a previous SKr85.Alcatel To Receive The 'Nokia Treatment'According to the analysts, the Nokia-Alcatel Lucent merger will create "materially higher" synergies compared to management's current expectations, as Nokia will apply its "operational discipline" to Alcatel-Lucent's assets. The analysts continued that the merger could create savings of €1.7 billion by 2018 versus the current guidance of just €900 million. €1.1 billion of the synergies could be realized from the duplicated opex base at Alcatel-Lucent's wireless business. €480 million of synergies could come from "shifting headcount" towards lower-cost geographies.The analysts also noted that their synergy savings estimate could be conservative, given: 1) the potential for more "rational" pricing in the "highly consolidated" wireless infrastructure market, 2) real estate savings from Alcatel-Lucent's "excessive" properties, and 3) additional saving opportunities from "pruning" the Alcatel-Lucent portfolio.Bottom line, the EBIT at the combined entity could nearly double to €4.3 billion by 2018, even in the current "challenging" spending environment in the wireless space.Ericsson: Search For Growth ContinuesIn a separate note, Sultania and Garcha expressed a bearish view on Ericsson. According to the analysts, global wireless capex is expected to be lower by three percent in 2016 and four percent the following year – thereby creating top-line "challenges" for Ericsson.According to the analysts, Ericsson's top-line will decline by two percent in 2016 and then one percent in the following year, implying that growth will "remain elusive" entering a weak capex environment. The analysts added that while the company has undertaken cost cutting initiatives, consensus estimates on the realized savings are "too high."