Nokia (NOK) touts a year-to-date price increase of 45%, but I remain bullish on the stock. Its forward P/E is still only 18.3x.
Nokia is a Finnish company engaged in the $114-billion wireless network industry. It currently has over 100 5G deals, and 160 5G engagement contracts.
Its 5G wireless network solutions, and fiber-to-the-home fixed broadband services could boost NOK’s YTD gain to over 50%. (See Nokia stock charts on TipRanks)
Surge in 5G Infrastructure
Government mandates are compelling telecom companies to upgrade their 4G cell sites to 5G. Wireless and fixed broadband companies cannot operate without government licenses.
Politicians in the Philippines can force companies like PLDT Inc. (PHI) and Globe Telecom (GTMEY) to upgrade their network infrastructure to 5G. Other countries’ politicians can do the same.
The rising deployment of 5G networks could improve Nokia’s TTM revenue of $26.4 billion. More 5G-related contracts could help Nokia improve its quarterly net income to above $500 million.
The FTTH business of Nokia also gives it a tailwind from the $15.3-billion fiber-to-the-home Internet market.
Huawei Still on U.S. Blacklist
Nokia’s estimated forward revenue CAGR is only 0.8%. This could significantly improve if Huawei remains forever in President Joe Biden’s list of blacklisted companies. North American and European countries are banning and replacing their Huawei network hardware.
Nokia will only have to compete against Juniper Networks (JNPR), Ericsson (ERIC), and Arista (ANET) on 5G contracts in North America, Europe, and other U.S.-allied countries.
Less competition will allow Nokia to get a greater share of the $80.5-billion 5G infrastructure business.
Wall Street’s Take
The consensus among Wall Street analysts is that Nokia is a Moderate Buy, based on seven Buys and three Holds. The average NOK price target is $7.33, implying 29.7% upside potential.
Conclusion
The relative undervaluation of Nokia makes it an intriguing investment. Its leadership in 5G wireless infrastructure and fiber-to-the-home optical broadband is propelling it back to profitability.
The extensive number of patents owned by Nokia gives it an edge against its rivals Ericsson, Arista, and Juniper Networks.
Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.
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