J.P. Morgan bullish on Nokia's outlook

Investing.com -- Shares of Nokia (HE:NOKIA ) rose on Monday, fueled by J.P. Morgan’s decision to upgrade the stock to “overweight” from “neutral,” signaling increased optimism about the company’s future performance. 

The brokerage set a new price target of €6.05 for Nokia’s Helsinki-listed shares, significantly higher than the previous target of €4. 

For the U.S.-listed ADRs, J.P. Morgan revised the target to $6.35 from $4.35. The upgrade reflects the brokerage’s confidence in Nokia’s ability to navigate the challenges in the telecommunications equipment market and capitalize on upcoming opportunities in 2025.

In their note, J.P. Morgan flagged several factors underpinning their optimism. The analysts pointed to a likely recovery in global telecommunications spending, which has been subdued due to inventory adjustments in the U.S. and delayed 5G rollouts in key markets like India. 

As these headwinds subside, Nokia is expected to benefit from increased demand, especially in the enterprise sector, where the company has been expanding partnerships, including a collaboration with Microsoft (NASDAQ:MSFT ) Cloud.

Despite underperforming against earnings estimates in 2024, Nokia’s stock has remained resilient, reflecting investor confidence in its longer-term recovery. 

J.P. Morgan said that the earnings projections for 2025 appear achievable, with the analysts’ own estimates exceeding market consensus by 10.2%. 

The brokerage also noted the positive impact of a stronger U.S. dollar on Nokia’s revenue, as nearly half of the company’s income is denominated in dollars.

Cost-saving measures announced by Nokia in 2023, including workforce reductions aimed at saving €800 million to €1.2 billion by 2026, are expected to bolster margins further in the coming years. 

J.P. Morgan projects an EBIT margin of 13% for 2025, compared to the consensus estimate of 11.8%, reflecting confidence in the company’s operational efficiency initiatives.

The brokerage also underscored Nokia’s valuation as a compelling factor for investors. Trading at a price-to-earnings ratio of 12.8x, the stock remains below its historical average of 14.2x, suggesting room for re-rating as earnings momentum builds. 

This discrepancy, combined with achievable earnings targets, positions Nokia favorably against its peers in the telecommunications sector.

While risks remain, including potential market share losses and weaker-than-anticipated capital expenditure in the telecom sector, J.P. Morgan’s outlook suggests that Nokia is well-placed to outperform. 

Source: Investing.com