Bank of America Merrill Lynch held meetings with Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC) management Friday that it said inspired greater confidence in the company’s scope for growth and turnaround efforts.
BofA's main takeaways from the management meetings in Sweden are positive, Liani said in the Wednesday upgrade note. (See his track record here.)
The company’s execution remains strong at a critical time when 5G decisions are being made, the analyst said. At this time, margins are being supported by a refined product portfolio and technical leadership, he said.
Although growth in China could put some pressure on margins, Ericsson’s product leadership and low total cost of ownership may offset the impact, allowing the company to gain market share without significant margin contraction, Liani said.
Ericsson’s 5G performance may be helped by two competitive forces going forward, the analyst said.
First, the U.S. pressure on Huawei may be positive for Ericsson, given that Huawei is Ericsson’s top competitor, he said.
Second, a potential merger between T-Mobile Us Inc (NASDAQ: TMUS) and Sprint Corp (NYSE: S) could accelerate 5G deployment. This could also trigger increased spectrum investments at AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ), Liani said.
“We expect competition and spectrum availability to drive 5G deployments in other parts of the world, translating into a prolonged cycle, which is currently at its very early innings."
BofA sees potential upside to the Street's 2020 estimates for Ericsson.
Ericsson shares were trading up 3.92 percent at $10.08 at the time of publication Wednesday.
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