Goldman Adds Nokia To Its 'Conviction List,' Says The Value Case Is Clear

Although Nokia Corp (ADR) NOK is likely to report weak top line for 2Q16, the company recently announced favorable Patents negotiation with Samsung, Goldman Sachs’ Alexander Duval said in a report. He maintained a Buy rating on the company, while raising the price target from $6.30 to $7.20; and added the stock to the Conviction List.

Analyst Alexander Duval expects Nokia to be able to receive a 0.4 percent royalty rate “on uplifted smartphone patents revenues over time,” following the negotiations with Samsung. The Patents revenue estimates for 2018, 2019 and 2020 have been raised by 25 percent, 23 percent and 21 percent, respectively.

The EPS estimates for 2017 and 2018 are currently ahead of the consensus expectations by 4 percent and 16 percent, respectively.

Catalysts

Nokia is likely to report a weak top-line for 2Q16. Duval added, however, “NOK is entering its most intensive cost-cutting phase and management has historically delivered strongly on efficiencies. We continue to argue NOK can deliver €1.15bn in synergies (+25% vs. prior guide of >€0.9bn) and we see strategic merits to NOK’s fixed line presence.”

Stock Performance

Although Nokia’s shares responded positively to the favorable Samsun negotiation news, they are still down 21 percent year-to-date, the analyst noted. He further stated that while investors are being cautious ahead of the 2Q16 results, the weak topline was already indicated by Nokia, the margin estimates are at a historic low and the company’s shares are trading at the same multiples as Ericsson’s shares, despite better growth and margins.

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