Will 5G Tailwinds Help Nokia Report An Earnings Beat?

Nokia (NYSE: NOK)) will release its Q4 and full-year 2019 results on Thursday, February 6. Trefis details expectations from the network equipment company in an interactive dashboard, parts of which we highlight below. We believe that Nokia will likely report an earnings beat for FY19 despite revenues being just shy of consensus estimates. The company’s revenues would have increased by 0.5% year-on-year to €22.7 billion (shy of the consensus estimate of €23 billion), primarily due to an increase in networking revenues. Also, the EPS figure should have reduced to €0.20 ($0.23) from €0.23 in 2018 due to higher expenses. Our EPS estimate is slightly higher than the consensus estimate of $0.22. Further, we believe that stronger-than-expected earnings for FY 2019 are likely to overshadow the revenue decline and will likely result in Nokia’s stock trending higher once it announces earnings. Our forecast indicates that Nokia’s valuation is $5 a share, which is roughly 20% above the current market price.

Trefis shines the spotlight on key assumptions and data for Nokia, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for Nokia’s FY19 earnings in our interactive dashboard.

(1) Nokia’s revenues would have decreased to €22.7 billion, below the consensus estimates

• Trefis estimates Nokia’s 2019 revenues to be  €22.7 billion, below the consensus estimate of  €23 billion.
• Nokia has lost around €1 billion to its revenue over the last two years, primarily due to declines in the Networks segment.
• However, we expect the company’s revenues to have grown slightly with the adoption of 5G technology, adding about €105 million in revenue in 2019.
• Nokia has been winning commercial 5G contracts, and this would likely have been the most significant growth driver.
• Moreover, Nokia’s enterprise has also been growing, adding new customers at a rapid pace. As demand for mission-critical networks increases, Nokia’s networking enterprise business will continue to grow.
• Although the company’s licensing revenues would have remained constant at €1.5 billion in 2019.
• For FY 2020, we expect Nokia’s revenue to increase by 0.8%, adding around €200 million in total revenues likely to be driven by steady growth across licensing and network segments.

Our interactive dashboard analysis, ‘Nokia Revenues – How Does Nokia Make Money?’ provides an in-depth view of the company’s revenues along with our forecasts and a comparison of trends with peers Ericsson and Cisco.

 (2) EPS is likely to decrease 12.7% from €0.23 (Non-IFRS) in 2018 to €0.20 in 2019, which is marginally above consensus estimates

• We expect Nokia’s 2019 earnings per share to be €0.20 ($0.23) – slightly higher than the consensus estimate of $0.22 per share.
• Higher expenses would have weighed on the company’s net income margin, resulting in Nokia’s EPS declining by 12.7%. This increase in expenses could be attributed to lower gross margin, partially offset by lower operating expenses.
• As we forecast Nokia’s Revenues to grow at a slower rate than Expenses in 2019 (0.5% vs. 1.3%), this will result in a 75 bps decrease in Nokia’s adjusted Net Income Margin figure from 5.75% in 2018 to 5% in 2019.
• For 2020, we believe that an increase in revenues coupled with lower expenses, will result in the net income margin figure expanding to 8.5%.

(3) Stock price estimate ~20% higher than the market price

• A trailing P/E multiple of 19.9x looks appropriate for Nokia s stock, which is higher than the current implied P/E multiple of 17x
• Trefis’ forecast for Nokia’s 2019 earnings as well as P/E multiple, are higher than the market expectations – working out to a fair value of $5 for Nokia’s stock as opposed to the current market price of around $4.

Additionally, you can input your estimates for Nokia’s key metrics in our interactive dashboard for Nokia’s pre-earnings, and see how that will affect the company’s stock price.

See all Trefis Price Estimates and Download Trefis Data here

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