Nokia Corp.’s stock rose to a six-month high on Wednesday after J.P. Morgan analyst Sundeep Deshpande upgraded the networking equipment maker to buy, citing a “turnaround” in gross margin in its mobile networks division. In lively lunchtime trading, the Finland-based company’s U.S.-listed stock NOK, +1.02 percent NOKIA, +0.55 percent gained 0.2 percent, putting it on track for its highest close since Jan. 27, when it benefited from meme-stock status. Trading volume has already surpassed 33.5 million shares, compared to a full-day average of 35.6 million shares over the last 30 days.
Nokia said it planned to improve its full-year financial guidance following “excellent” second-quarter results, and the stock rose 9.5 percent on activity of 112.9 million shares on Tuesday. Nokia will announce its second-quarter results on July 29. One year after lowering the stock to neutral, Deshpande restored his recommendation to overweight. He increased his price estimate for the publicly traded shares in the United States by 81 percent, to $7.80 from $4.30. Since April 2015, the stock hasn’t moved as high as $7.80. He believes that Nokia’s strong trends in the second quarter are “only the beginning” of an upgrade cycle, which will result in higher mobile network gross margins. Deshpande stated in a note to clients, “We believe investors should prepare for the upgrading cycle that is anticipated to continue over the next 12 months,” with his new objective predicting a gain of more than 30% from present prices.
MarketWatch, FactSet
He pointed out that analysts estimate Nokia’s second-quarter gross margin in mobile networks to fall 1.26 percent from a year ago, despite the fact that it grew 2.2 percent in the first quarter, which is normally the company’s poorest quarter. More information about Nokia’s first-quarter results may be found here. Given that “more and more” equipment is currently shipping, Deshpande feels it is unlikely that gross margin in mobile networks will fall. Deshpande stated, “We now feel fairly certain that consensus gross margin for this division is incorrect, and that Nokia’s gross margin in Mobile Networks will remain steady or grow year-over-year, with a related positive impact on operating profit.” Nokia’s stock is up 50.6 percent year to date, compared to 21.7 percent for the SPDR Communication Services exchange-traded fund XLC, +0.16 percent and 16.5 percent for the S&P 500 index SPX, +0.22 percent./n
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