Nokia Connects

Nokia (NYSE: NOK  ) plowed higher today on word that its fourth quarter was stronger than expected. The news also boosted network equipment stocks such as Cisco Systems (Nasdaq: CSCO  ) and Lucent Technologies (NYSE: LU  ) , as well as rival operators Ericsson (Nasdaq: ERICY  ) and Alcatel (NYSE: ALA  ) .

The magic words spoken by Nokia included, "stronger than expected year-end operator investments." These words alone increased hopes around the globe that capital expenditures for telecommunications equipment is on the rebound.

Seasonality played a factor in the spending increase, however, as did purchasing managers using up budgets at year end; given this, the best stance to take regarding a turnaround is still one of cautious optimism. Also, keep in mind that rather than a bona fide equipment spending turnaround, recent strength could merely represent a bounce. Follow-through is not always a given.

This said, there appears to be relative value in beaten-down telecom and networking-related stocks. Consider foremost the companies with strong capital structures and balance sheets, healthy free cash flow, and uncheckered operating histories. Nokia fits the bill.

In the recent quarter, the company logged network sales of $2.13 billion, easily topping the $1.75 billion forecast. Mobile phone sales rose 4% to $8.75 billion. Overall, revenue edged out 2002's fourth-quarter sales of $10.2 billion. Also on the plus side, pro forma operating margins jumped to 12% due to a favorable product mix and strong average selling prices.

Nokia now expects $0.35 to $0.36 in pro forma earnings per share for the fourth quarter, well above the $0.26 consensus.

Currently at $20, the stock trades at 24 times trailing free cash flow, which is below the market average. It's at 22 times 2003's likely earnings, and 20 times 2004 estimates, which will be raised. Two-year earnings growth estimates range from 3% to 25%. Even taking the lower-middle of this range as the safer assumption, Nokia could offer decent upside.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 504876, ~/Articles/ArticleHandler.aspx, 10/25/2014 11:20:31 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement