NO BRAINER..............Nokia::::::: Nokia Looks Like a Smart Call Again
By Greg Bartalos
F or months, makers of cellular phones have gotten a fuzzy reception from investors because of the global economic slowdown.
Indeed, major handset providers Motorola and LM Ericsson have been reeling because of unexpected weakness in this once-hot area. And in March market leader Nokia slashed its 2001 forecast for global handset sales, citing "difficult market conditions."
Motorola, whose personal communications unit (which makes handsets) lost $402 million in the first quarter, has seen its stock price drop 61% from its 52-week high. Ericsson's shares have lost 66% of their value.
But Nokia has quietly been picking up chunks of market share in the handset business at its rivals' expense. And though its share price has been cut in half from its peak, some bulls say that when the economy recovers, so will the stock of the Helsinki-based cell-phone giant.
"In this slowing environment, Nokia's position has become something of a stranglehold," says Todd Koffman, managing director of Raymond James.
Nokia had captured about 30.6% of the market at the end of 2000, almost a four- percentage-point gain in one year, when its share stood at 26.9%, according to Gartner Dataquest. During that time, Motorola, the world's second-largest handset seller, lost 2.3 percentage points of share, to 14.6% of the market, while Ericsson slipped 0.5% to 10%.
Brian Modoff, an analyst at Deutsche Banc Alex. Brown, estimates that Nokia has pulled even further away from the pack in the last few months. He says Nokia "gained at least a couple points" since the end of 2000, while he thinks Motorola has stayed roughly where it was and that Ericsson has lost one to two percentage points of share.
Nokia's overall results, however, do not yet fully reflect its formidable market position.
Although the company's fourth-quarter results slightly topped analyst's estimates, the world's largest handset maker in January lowered its sales outlook for the first quarter and all of 2001.
Two months later, Nokia cut its 2001 forecast for global handset sales to 450-500 million units, from 500-550 million units. Nokia also said first-quarter revenues would grow by only 20%, instead of the already-lowered projected growth of 25% to 30%. It also said it would lay off up to 400 employees.
But unlike its competitors, Nokia's management said it would meet first-quarter earnings targets, thanks to cost savings and higher margins. (Nokia is scheduled to announce first-quarter results on Friday, April 20th. The consensus, according to First Call, expects it to earn 17 cents a share.)
What's more, Wall Street is looking for Nokia to grow earnings at a 25% annual clip for the next five years -- higher than the 20% growth estimated for its industry and nearly double the 13.7% rate of growth expected for the S&P 500, according to Thomson Financial/First Call.
One key to Nokia's success -- it's an efficient operator. Nokia had a 21.3% operating margin for its handset unit in the fourth quarter, while Motorola's margins were a mere 2.2% and Ericsson actually lost money.
Alan Lowenstein, co-portfolio manager of the John Hancock Technology Fund, says Nokia has strong marketing, products, management and financials that should keep it ahead of its rivals. He says pricing pressures in the handset market appear to have leveled off for Nokia and that the company's enormous market share gives it a strong competitive advantage. "When rolling out products, Nokia gains traction much faster," he says.
Matt Hoffman, wireless equipment analyst for Wit Soundview, says buying Nokia at current prices is a "no-brainer." Hoffman, who upgraded Nokia to Strong Buy in February, says, "Nokia is going to benefit from improved pricing starting in the second quarter." He also likes Nokia's "great balance sheet," and puts a $45 price target on the stock.
Nokia stock isn't dirt cheap, but it's certainly less pricey than it's been in a while. At $31.60 late Thursday afternoon, Nokia trades at 39 times the projected 2001 earnings per share estimate of $0.81 and at 30 times the consensus earnings per share estimate of $1.04 for 2002. The stock also sells at 42 times the $0.75 per share profit that Nokia earned in 2000, slightly above the stock's median P/E of 38.9x trailing-12-month earnings during the past five years, according to Thomson Financial/Baseline. |
