Has the Market Topped? Has Nokia?
FORTUNE
Issue date: March 1, 1999
Vol. 139, No. 4
pathfinder.com
Has the Market Topped? Has Nokia
Analyst vs. Analyst
Erick Schonfeld
It's the Question of the moment: Is there more life left in the bull market--especially for tech stocks--or is it time to get out? For a capsule view of the debate, check out Finnish cell-phone and wireless-equipment maker Nokia.
At $135 recently, the share price of Nokia's American depositary receipts has doubled since October and tripled over the past year. And in late January the company reported fourth-quarter earnings that blew away consensus Street estimates by 13 cents a share. Can this kind of performance continue?
No, says Morgan Stanley Dean Witter analyst Angela Dean. "We've had a great ride," she says, "but some momentum has come out of the stock. So don't add any to your holdings for now." In early February, Dean downgraded her rating to "neutral."
Yes, says Marc Cabi of Credit Suisse First Boston. After hearing the exact same fourth-quarter earnings announcement, Cabi reiterated his strong "buy." His 12-month price target is $165, and he thinks Nokia is poised to gain market share.
How can the same numbers lead to such opposite reactions? The two analysts' opinions are rooted in fundamentally different assumptions about the future of wireless, which up till now has been a supplementary technology for telephones and other land-based networks.
Last year sales for Nokia's cellular phone unit (which make up the bulk of the company's overall revenue of $16 billion) grew a phenomenal 74%--more than double the usual 35%--and its operating margins shot up from 14% to 19%. "You have to assume that was unusual," says Dean. She expects the unit's margins to contract to a more normal 16% this year and earnings per share to be just $3.73.
Cabi, on the other hand, thinks the old assumptions should be thrown out. Wireless, he says, "is now becoming pervasive and starting to be promoted as a replacement for wireline. Nokia is catering to this phenomenon." Another important factor will be the advent of wireless data networks. Thus, Cabi doesn't think Nokia's margins will contract quite so sharply, and his 1999 EPS estimate is $3.95.
So who do you believe? |
