Credit Suisse Maintains Outperform Rating On Nokia, Cites Integration Progression And Forward Catalysts

Credit Suisse analysts Kulbinder Garcha, Achal Sultania, Syed Talha Saleem and William Chu discussed the catalysts ahead for Nokia Corp (ADR) (NYSE: NOK) in addition to the integration progress of the company. The analysts have retained their Outperform rating on the shares of the company.

The brokerage said, "YTD We have absorbed a lot of bad news: Samsung IPR settlement was a disappointment followed by a reset on EBIT margin estimate for 2016. Given weaker capex trends, we slightly lower our Networks EBIT margin for 2016 (from 9.0 percent to 8.5 percent), our fundamental thesis that Nokia will significantly over-deliver on synergies over time remains intact."

Credit Suisse cited positive catalysts including formal revision up in cost savings target, long-term OM guidance and increased capital returns.

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The brokerage sees Nokia's network guidance as conservative. The four analysts said, "We believe that trends in Networks should normalize from Q3 as it moves past the uncertainty phase with ALU integration. Even assuming sub-seasonal Q2 for Networks (CSe at +3 percent qoq sales growth and 6.1 percent EBIT margins down 40bp qoq vs. normal seasonality of +8 percent qoq for sales and 400 bps margin rise in Q2), we now believe that Networks should deliver 8.5 percent EBIT margins for 2016 (well above guidance of over 7 percent)."

The Finnish company also stands to gain from cost savings starting to come through (CSe at €1.2 billion net over 2016–2018). Therefore, the analysts believe that Networks EBIT could grow to €3.1 billion (14 percent margin) by 2018 from €1.9 billion (8.5 percent margin) in 2016.

At time of writing, ADRs of Nokia were trading up 0.70 percent at $5.74.