Nokia (NYSE:NOK) shareholders are very angry with the CEO. After the company eliminated the dividend for the next two quarters and said it wanted $2 billion in cash flow before resuming, NOK stock fell by over 20%. With no investor trust with management, the stock will languish below the $4.00 level.
Nokia reported EPS and revenue in-line with market expectations but it admitted the 5G competition is weighing on its performance.
Conversely, Ericsson (NASDAQ:ERIC) enjoyed strong growth due to 5G. Investors are hard-pressed to justify holding NOK stock when they could hold ERIC stock instead. Now that the dividend is suspended for two quarters, income investors have no reason to hold NOK stock. Still, there is hope.
Nokia will boost its 5G investments to strengthen its strategic positioning in the market. It must win more enterprise and software supply contracts to grow net sales. In Q3, revenue grew just 1% to EUR 5.7 billion, up 1% Y/Y. Along with a dividend halt, the cash flow growth through cost cuts will strengthen the company’s efficiency. But shareholders will have to suffer for at least two quarters while it transitions.
Exiting non-profitable countries may add to one-time costs but will ultimately strengthen the company’s long-term prospects.
Takeaway
With a recent trading price of $3.75, Nokia stock is cheap at below 10 times forward earnings. The expected EPS growth of 52% is now too high. Expect a cut in expectations, followed by a rebound mid-next year at the earliest.
Disclosure: Author owns shares of Nokia.
