Nokia Is the Reigning Cell Phone Champion
By Todd P. Bernier
Morningstar.com
What Happened?
Shares of cellular phone king Nokia (NYSE: NOK - news) soared 25% after the company blew past earnings estimates Thursday morning. Phone sales, which account for 72% of Nokia's revenue, were up 59% in the September quarter, leading to a 40% rise in profits.
More important, Nokia's normally conservative CEO said in the conference call that the current quarter would be ``record-setting'' and that revenue should increase about 30% again next year.
What It Means for Investors
We think long-term investors should ignore the short-term venom spewed by Wall Street--one firm even downgraded the stock Wednesday-- and pick up shares in Nokia, the Big Kahuna in a very fast-growing industry. Even after Thursday's leap, investors have an opportunity to buy into a market leader at the very reasonable price of roughly 35 times next year's earnings, as estimated by Zacks.
Considering that the firm's bottom line has increased 59% throughout the first three quarters of this year, we think investors are getting Nokia on the cheap.
While Motorola (NYSE: MOT - news) trudged along with operating margins on its phones of a paltry 6%, the operating margin on Nokia's phones clocked in at 19.5% during the quarter. A week ago Motorola said that the handset market is growing less quickly than previously projected, but on Thursday's conference call, Nokia's CEO refuted this claim, sticking to his earlier guidance that the market would still absorb about 550 million units next year.
Clearly, Nokia is gaining share at the expense of Motorola, particularly in the lower end of the market, where most phones are sold.
Todd P. Bernier can be reached at todd_bernier@morningstar.com. |
