Amid the COVID-19 pandemic, networking solutions are in high demand as vast amounts of data are being uploaded to the cloud due to remote work. This trend is expected to continue owing to the resurgence of COVID-19 cases worldwide. Moreover, the growing need for businesses to go digital to remain competitive is expected to increase the need for agile networks, driving the network industry’s growth. According to a report by Markets and Markets, the global network-as-a-service (NaaS) market is expected to grow at a CAGR of 29.4% by 2026. Therefore, both Nokia Corp. (NOK) and CommScope Holding Co. Inc. (COMM) should benefit.
Headquartered in Espoo, Finland, NOK provides mobile and fixed network solutions worldwide. It operates through four segments: Mobile Networks, Network Infrastructure, Cloud and Network Services, and Nokia Technologies. COMM provides infrastructure solutions for communications and entertainment networks. It operates through four segments: Broadband Networks; Home Networks; Outdoor Wireless Networks; and Venue and Campus Networks.
COMM has gained 16.5% over the past month, while NOK has returned 12.3%. Which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On December 20, 2021, NOK announced that Elisa Estonia had selected it for a nationwide 5G RAN deployment and to replace the existing 4G infrastructure in a five-year deal. Tommi Uitto, president of Mobile Networks at Nok, said, “We are delighted to have been selected by Elisa Estonia in this deal and for their trust in our technology leadership. Our AirScale portfolio will deliver cutting-edge connectivity to their customers.”
On December 10, 2021, COMM announced that its upcoming RDK-based VIP73xx streaming solutions would be included in Netflix’s new DaVinci scaling partner program. This could lead to increasing demand for its product in the forthcoming months.
Recent Financial Results
NOK’s net sales increased 2% year-over-year to €5.40 billion ($6.10 billion) for the third quarter ended September 30, 2021. Its comparable operating profit grew 30% year-over-year to €633 million ($714.83 million), while its comparable profit for the period increased 52% year-over-year to €463 million ($522.85 million). Also, its comparable EPS came in at €0.08, up 60% year-over-year.
COMM’s net sales decreased 2.9% year-over-year to $2.11 billion for the fiscal third quarter ended September 30, 2021. The company’s adjusted EBITDA declined 24.2% year-over-year to $259.10 million, while its adjusted net income came in at $72.20 million representing a 41.3% year-over-year decrease. Also, its adjusted EPS came in at $0.29, down 43.1% year-over-year.
Past and Expected Financial Performance
NOK’s EBITDA and total assets grew at CAGRs of 11.7% and 0.4%, respectively, over the past three years. Analysts expect NOK’s revenue to decrease 2.6% for the quarter ending March 31, 2022, but increase 3% in fiscal 2022. The company’s EPS is expected to decline 26.8% for the quarter ending March 31, 2022, but grow 2.5% in fiscal 2022. Moreover, its EPS is expected to grow at 17.9% per annum over the next five years.
On the other hand, COMM’s EBITDA and total assets grew at CAGRs of 5.2% and 25.4%, respectively, over the past three years. The company’s revenue is expected to decrease 2.3% for the quarter ending March 31, 2022, but increase 3.3% in fiscal 2022. Its EPS is expected to decline 37.8% for the quarter ending March 31, 2022, but grow 28.6% in fiscal 2022. Also, COMM’s EPS is expected to grow at 11% per annum over the next five years.
Profitability
NOK’s trailing-12-month revenue is 3.05 times what COMM generates. NOK is also more profitable with a gross profit margin and EBIT margin of 40.75% and 10.92% compared to COMM’s 31.94% and 3.61%, respectively.
Furthermore, NOK’s ROA and ROTC of 3.92% and 6.86% are higher than COMM’s 1.42% and 1.76%, respectively.
Valuation
In terms of forward EV/S, COMM is currently trading at 1.49x, 20.2% higher than NOK’s 1.24x. Moreover, COMM’s forward EV/EBITDA ratio of 11.48x is 37% higher than NOK’s 8.38x.
So, NOK is relatively affordable here.
POWR Ratings
NOK has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, COMM has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
NOK has a grade of C for Quality. This is justified given NOK’s 6.86% trailing-12-month ROTC, which is 37.5% higher than the industry average of 4.99%. On the other hand, COMM has a Quality grade of D, in sync with its 1.76% trailing-12-month ROTC, 64.7% lower than the industry average of 4.99%.
Of the 55 stocks in the Technology – Communication/Networking industry, NOK is ranked #13. In comparison, COMM is ranked #45.
Beyond what I’ve stated above, we have also rated the stocks for Growth, Value, Stability, Momentum, and Sentiment. Click here to view all the NOK ratings. Also, get all the COMM ratings here.
The Winner
The networking solutions market is expected to grow exponentially with increasing demand for advanced technologies. While both NOK and COMM are expected to gain in the long run, it is better to bet on NOK now because of its robust financials, lower valuation, and higher profitability.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Technology – Communication/Networking industry here.
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NOK shares were trading at $6.14 per share on Wednesday afternoon, down $0.11 (-1.76%). Year-to-date, NOK has declined -1.29%, versus a -1.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
More Resources for the Stocks in this Article
| Ticker | POWR Rating | Industry Rank | Rank in Industry |
| NOK | Get Rating | Get Rating | Get Rating |
| COMM | Get Rating | Get Rating | Get Rating |
