When Nokia (NYSE:NOK) last reported its earnings in late July, the shares got a nice boost. But the gains proved ephemeral. Consider that Nokia stock has gone from $5.70 to $5.14.
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But of course, disappointment has been common for the company. After all, for the past 15 years, the average return for NOK stock has been essentially 0%.
Despite this, I actually think there is an opportunity here. In fact, the latest earnings report should be an encouraging sign that the company’s transformation efforts are starting to show progress. In the quarter, revenues rose by a decent 7.2% to 5.69 billion euros, which handily beat the Street estimates. There was also a beat on the bottom line – that is, after adjusting for various good will and non-cash charges.
NOK even reaffirmed its full-year guidance. The earnings are expected to range from 0.25 euros and 0.29 euros per share in 2019 and 0.37 euros and 0.29 euros per share the following year. All in all, the company is certainly expecting more momentum.
And the reason for this? It’s the 5G megatrend. Carriers like AT&T (NYSE:T), Verizon (NYSE:VZ) and T-Mobile (NASDAQ:TMUS) are ramping up their efforts – and this means buying large amounts of telecom equipment.
To get a sense of how strategic 5G is, just look at Apple (NASDAQ:AAPL). The company abruptly settled its massive lawsuit against Qualcomm (NASDAQ:QCOM) largely because it needs its 5G systems. Let’s face it, if AAPL wants to remain a top smartphone marker, it has little choice but to get the max from next-generation networks.
So yes, this is very good for NOK. Through is acquisition of Alcatel, the company is one of the world’s largest equipment providers for 5G.
5G Timing and NOK Stock
OK, if the 5G opportunity is so great, why hasn’t it done much for NOK stock? Well, it’s important to keep in mind that the sales cycles are long in the industry. Before deciding on making large capital investments, telecom operators do quite a bit of due diligence.
Next, 5G projects are multi-year endeavors. And they are risky. Even slight issues with execution can derail a project.
But the good news for NOK is that next year there will be significant rollouts of 5G networks – and this should provide a nice catalyst for growth.
Again, the latest earnings report provided key details on the traction. For example, the company announced 45 commercial 5G deals and nine live networks, such as with China Mobile (NYSE:CHL) and Sprint (NYSE:S). Interestingly enough, this is considerably more than rival Ericsson (NASDAQ:ERIC).
Something else: The U.S.-China trade war will likely accelerate growth with NOK. Of course, Huawei has been a big target for President Donald Trump and this has caused quite a bit of disruption for the company. The result is that NOK should have more of an edge when getting new deals.
Bottom Line on Nokia Stock
Granted, it’s not easy to be bullish on NOK stock. The company’s performance has certainly been choppy.
But again, NOK has spent much time making significant changes in its business. Note that through next year, there are expected to be cost reductions of about $700 million euros.
Even better, there should be improvement on the top-line as 5G hits critical mass. If anything, the buzz surrounding this technology should gin up lots of excitement.
In other words, there’s a good bet that NOK stock could finally get out of its funk – and fairly soon.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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