On Monday, JPMorgan (NYSE:JPM) shifted its stance on Nokia OYJ (HE:NOKIA:FH) (NYSE: NOK), upgrading the stock from Neutral to Overweight and increasing the price target to EUR6.05 from the previous EUR4.00.
The stock, which has gained 27% year-to-date and maintains a "GOOD" financial health score according to InvestingPro, could have more room to run. The firm anticipates a likely uptick in telecommunications spending in 2025, driven by the conclusion of inventory adjustments in the US telecom sector and a new phase of 5G investments in India.
The analyst from JPMorgan also pointed to Nokia's potential growth in the enterprise market, citing the company's recent expansion of its partnership with Microsoft (NASDAQ:MSFT) Cloud as a positive development. With a strong free cash flow yield and more cash than debt on its balance sheet, Nokia appears well-positioned for growth. This collaboration, along with favorable currency movements, is expected to make Nokia's financial estimates for 2025 attainable.
Telecom (BCBA:TECO2m) equipment stocks, according to the firm, have been underrepresented in investment portfolios based on feedback from recent marketing trips. JPMorgan suggests that Nokia's shares could re-rate positively as more investors engage with the stock. This sentiment is contrasted with the challenges facing semiconductor companies, which are part of the broader Tech hardware sector and are currently facing headwinds in revenue growth and order momentum into the first half of 2025.
Despite these challenges for semiconductor companies, they are trading at a 62% premium on projected 2025 price-to-earnings (P/E) compared to telecom equipment stocks covered by JPMorgan. For context, Nokia currently trades at a P/E of 55.7, and InvestingPro analysis suggests the stock is currently undervalued based on its Fair Value model.
The firm notes that semiconductor companies in its coverage are expected to see a median sales growth of 21.8%, which is significantly higher than the 0.05% median growth forecast for telecom equipment companies.
However, there is a potential for greater risks to the earnings of semiconductor companies, which could affect their valuation premium over telecom equipment stocks.
In other recent news, Nokia Corporation reported mixed results for the third quarter of 2024. Despite growth in Fixed Networks and IP Networks, the company faced challenges in its Mobile Networks segment which declined by 17%. Nokia achieved EUR 500 million in run rate gross cost savings and generated over EUR 600 million in free cash flow for the quarter. The company's acquisition of Infinera (NASDAQ:INFN) is progressing with closure expected in the first half of 2025.
Nokia's 2024 financial outlook remains unchanged, despite a projected 3%-6% decline in Network Infrastructure sales and an expected 19%-22% decrease in Mobile Networks sales. The company's net sales declined by 7%, primarily due to the Mobile Networks segment, which is expected to fall below EUR 8 billion this year.
On the brighter side, Nokia Technologies saw a 36% increase in sales and the company reported significant gross margin improvement. The company is focused on driving future growth through strategic diversification and cost management, with specific revenue targets to be outlined following the completion of the Infinera acquisition in 2025.
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