Finnish equipment supplier Nokia has recently endured a series of setbacks, and now it faces another blow.
In a report released on Thursday, Citi analyst Andrew Gardiner downgraded Nokia to Sell from Buy and reduced the price target of its shares to €2.70, or approximately $2.95, from €4.10. As a result, the company’s American depositary receipts fell 3.4% to $3.26 in Friday’s trading session.
Earlier this month, rival Swedish telecom company Ericsson reached a deal with AT&T to purchase up to $14 billion worth of network equipment over the next five years. This news did not bode well for Nokia, as it has stated that AT&T accounted for 5% to 8% of its mobile networks net sales in 2023.
Furthermore, Nokia recently slashed its long-term operating margin guidance for 2026. Gardiner anticipates that there will be more negative news headlines surrounding the company, and he believes that the complete 2024 guidance, expected to be released in January, will likely disappoint. In fact, Gardiner’s estimates for the company’s operating profit in 2024 and 2025 are significantly lower than market consensus.
To reflect the company’s challenges, Gardiner adjusted his target multiple for Nokia’s stock to 8 times earnings from the previous 10 times multiple. According to FactSet, the stock currently trades at 9.2 times forward earnings.
Gardiner admits that his valuation target is likely too low for the long term, but he struggles to identify potential drivers that would raise it. He states, “Such a multiple is unquestionably cheap and we think in the long-term, unjustifiably so. 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 in 2023.”
Nokia has not yet responded to requests for comment.
Due to falling estimates and lost business, Nokia’s shares are currently trading at historical lows. According to Dow Jones Market Data, the company’s shares have plummeted by 30% in 2023, making it their worst performing year since 2019 when they experienced a 36% loss.