Finland-based network solution provider Nokia Oyj (NOK) beat quarterly operating profit expectations in the fourth quarter that ended in December 2022. Moreover, the company forecasts 2023 full-year net sales between €24.90 billion ($26.62 billion) and €26.50 billion ($28.33 billion), which implies growth between 2% and 8% in constant currency.

NOK ended 2022 on a solid note as it managed to diversify its customer base from network service providers to industrial customers who set up their own private 5G networks at power plants, utilities, and mines, among others. Apart from growing demand from business customers, the company also got big contracts from Indian telecom operators to launch 5G in India.

Chief Executive Pekka Lundmark said, “Looking forward to 2023, while we are mindful of the uncertain economic outlook, demand remains robust.”

Moreover, the company ensures close alignment and collaboration between its ESG strategy, technology strategy, and technology vision, along with its core product development within the business groups. One of NOK’s key strategic objectives is to make ESG a competitive advantage.

Furthermore, NOK pays an annual dividend of $0.08 that yields 1.76% on the current market price, higher than the 4-year average dividend yield of 1.18%.

The company’s shares have gained marginally intraday, closing the last trading session at $4.68. It has a 24-month beta of 0.88. Wall Street analysts expect the stock to hit $7.05 in the near term, indicating a potential upside of 50.6%.

Here’s what could shape NOK’s performance in the near term:

Positive Recent Developments

On February 14, NOK and Kyndryl Holdings, Inc. (KD), the world’s largest IT infrastructure services provider, announced a three-year extension and expansion of their global network and edge partnership, with a focus on developing and delivering industry-leading LTE and 5G private wireless services and Industry 4.0 solutions to customers worldwide.

KD and NOK established their global network and edge computing alliance in February 2022. The partnership has grown exponentially, with more than 100 engagements with global enterprises, from advisory or testing to piloting to full implementation across 24 countries.

On January 23, NOK announced that it had signed a new cross-license 5G patent agreement with Samsung, under which Samsung will make payments to Nokia for a multi-year period beginning 1 January 2023, following the expiry of the previous agreement at the end of 2022.

Robust Financials

NOK’s net sales rose 16.1% year-over-year to €7.45 billion ($7.97 billion) for the fourth quarter that ended December 31, 2022. Its gross profit grew 25.8% year-over-year to €3.19 billion ($3.41 billion). Also, its profit rose 363.5% year-over-year to €3.15 billion ($3.37 billion), while its EPS came in at €0.56, representing an increase of 366.7% year-over-year.

Favorable Analysts Estimates

Analysts expect NOK’s revenue for the first quarter ending March 2023 to be $6.29 billion, indicating an 11.9% year-over-year growth. The company’s EPS for the same quarter is expected to increase 11.6% from the prior-year quarter to $0.08.

In addition, NOK’s EPS and revenue are expected to rise 10.3% and 1.2% year-over-year, respectively, to $0.52 and $27.96 billion in the fiscal year 2024. Also, the company has an impressive earnings surprise history as it topped the consensus revenue estimates in all of the trailing four quarters.

Discounted Valuation

In terms of forward non-GAAP P/E, NOK is currently trading at 9.96x, which is 51.7% lower than the 20.62x industry average. Its 0.50 non-GAAP forward PEG ratio is 70% lower than the 1.66 industry average.

Moreover, NOK’s forward EV/Sales and Price/Sales multiples of 0.80x and 0.94x are lower than the 2.90x and 2.95x industry averages.

POWR Ratings Reflect Solid Prospects

NOK has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NOK has an A grade for Value, consistent with its lower-than-industry valuation multiples.

It has a B grade for Sentiment. Favorable analysts’ expectations justifies this grade.

Among the 49 stocks in the B-rated Technology – Communication/Networking industry, NOK is ranked #11.

Beyond what is stated above, we have graded NOK for Growth, Stability, Quality, and Momentum. Get all NOK ratings here.

Bottom Line

NOK’s prospects look bright amid the widespread adoption of 5G around the globe. Moreover, analysts are bullish on the stock.

So, given its solid fundamentals, NOK could be a solid buy under $5 now.

How Does Nokia Corporation (NOK) Stack up Against Its Peers?

NOK has an overall POWR Rating of B. One could also check out these other stocks within the Technology – Communication/Networking industry with an A (Strong Buy) rating: PC-Tel, Inc. (PCTI), Extreme Networks, Inc. (EXTR), and Cisco Systems, Inc. (CSCO).

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NOK shares were unchanged in premarket trading Tuesday. Year-to-date, NOK has gained 1.16%, versus a 7.95% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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