Nokia - From an optimistic Q1 to a Q4 "Wall of Worry". Back on 4/22 I rendered an optimist's view for NOK, implying a possible year-end stock value of $29 to $32 - but also cited that view as being scary, since it was based on the strong first quarter EPS report. Now NOK's stock struggles to hold a price around $20.50, having encountered a that wall of worry, including:
1. The prospective negotiation/fight with QCOM over IPR values.
2. A possible slowdown in WCDMA sales, based on recent Texas Instruments remarks
3. Increasing uncertainty over the Siemens networks joint venture - Will it happen? Will it be successful?
4. Uncertainty regarding first half profitability for the Enterprise unit
5. Perceived continuing weaknesses in the mid-range product line
6. The planned shift of the entire product line and manufacturing process to a thinness optimized product architecture - which Nokia calls a basic competitive requirement
7. Nokia and analyst's views that 2007 will be a slowing market with only about 10% growth
8. Expected further ASP's decline in 2007 due to most growth being in emerging markets
9. The stated reduced margin targets - 15% overall - for the next 1 to 2 years, representing a continuing profit margin squeeze from too much pricing competition
10. Analyst's earnings estimate reductions during the last 90 days - Q4 down from $0.39 to $0.36; Year '06 from $1.32 to $126; Year '07 from $1.48 to $1.41; Q1 '07 from $.33 to $0.31
11. NOK lags the NASDAQ and the telecom equipment index
12. NOK's TFQ P/E is down to about 17 (vs. mid-year >22); FFQ P/E now about 13.5 (vs. mid-year about 18)
13. An overall analyst disappointment in the Amsterdam presentations - nothing new and highly positive
Is Nokia's near-term future really that scary? Forbes International Investment Report editor, John Christy, likes Nokia "for its modest valuation and the prevalent pessimism swirling around the stock". Jim Jubak, in MSN Money, lists NOK as one of his "10 stocks for the future". And NOK is still listed as a strong buy by 9 analysts, with an overall 12 months target price of about $25.
Looking forward to a strong Q4 earnings report and an optimistic, rather than ultra-conservative forward view by management for Q1'07 and the year 2007.
Sisuman |
