Sell Nokia Stock, Citi Says. It Remains ‘a Value Trap.’

Earlier this month, AT&T said it reached a deal with rival Swedish telecom company Ericsson to buy up to $14 billion worth of network equipment over five years, as part of its effort to build out a commercial-scale open radio access network beginning next year. That was bad news for Nokia, which has said AT&T accounted for 5% to 8% of its mobile networks net sales so far this year.

Nokia went on to cut its long-term operating margin guidance for 2026. Citi’s Gardiner expects more ”negative headlines” to come and says complete 2024 guidance will likely disappoint when it arrives in January. That being said, the analyst’s operating profit estimate for 2024 and 2025 lands far below consensus.

Gardiner pulled back his target multiple for the stock to 8 times earnings from 10 times previously. According to FactSet, the stock trades at 9.2 times forward earnings.

Gardiner acknowledges that this valuation target is likely too low for the long term, but the analyst also struggles to see possible drivers to bring it higher.

“Such a multiple is unquestionably cheap and we think in the long-term, unjustifiably so,” Gardiner wrote. “The problem for Nokia shares, however, is that we do not see any prospect of multiple expansion while estimates continue to decline, which will lead shares to remain a value trap, as they have been for 2023.”

Nokia pointed Barron’s to comments made by President and Chief Executive Officer Pekka Lundmark earlier this week.

“We are also revamping the strategy for our Mobile Networks business to capture mid to long-term value opportunities,” Lundmark said in a Tuesday news release. “Across our other business groups we are seeing positive results.”

Falling estimates and lost business have left the shares trading at historical lows. Nokia shares are down 30% in 2023, on track for their worst year since 2019, according to Dow Jones Market Data, when they lost 36%.

Write to Emily Dattilo at [email protected]