The Worst Is Behind Ericsson, Says Credit Suisse

Credit Suisse upgraded Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC) to Neutral from Underperform, saying the "worst is behind" the networking gears manufacturer.

"Our analysis of capex trends at leading operators in key regions suggest that while demand remains weak, capex declines will start to moderate from 2H16 (except China). As such, we believe the worst is behind us both in terms of revenues and business mix," analyst Achal Sultania wrote in a note.

Further, Sultania expects the recent ramp up in cost cutting efforts should lead to a gradual improvement in EBIT margins for the company over the next 12–18 months.

Related Link: Ericsson Announces Multi-Year Contract With MLB Network For Real-Time Sports Graphics Software

In addition, the analyst also termed Ericsson's revised opex guidance of SKr53 billion annualized from 2H17 (versus the previous guidance of SKr58.5 billion and 2014 level of SKr63 billion) is a "step in the right direction."

"While we may not see any material EBIT improvement in 2H16, we believe cost cutting and gradual mix improvement should allow for 10 percent EBITA margins in 2017 (vs. 8.4 percent we assume for 2016)," Sultania highlighted.

Shares of Ericsson closed Friday's regular trading session at $6.93. The analyst marginally cut the price target to $6.40 from $6.43.

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