Finnish telecom giant Nokia’s (NYSE:NOK) earnings smashed analyst expectations despite its supply chain issues. Its 5G advancements are paying off handsomely, and it appears that the company has stabilized its course under its CEO, Pekka Lundmark. Though Nokia had some major mistakes in the past few years, its business is back on track with the expansion of the 5G sector. Moreover, it is expected to be profitable as well, with expected 2021 earnings per share of 39 cents, and NOK stock is trading at just 1.2 times forward sales.
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Before the new CEO took over, Nokia had focused more on belt-tightening measures and integrating its acquisition of Alcatel-Lucent. Moreover, the escalating trade wars cut off several major contracts for the company in China.
However, things have turned around swiftly after Lundmark’s takeover. He has prioritized Nokia’s cloud and networks business to drive future growth for the company. Additionally, he has also stabilized the company’s 5G business which had lagged behind its peers. Hence, the new-look Nokia is poised for massive growth, taking NOK stock to new heights.
Strong Third-Quarter Results
Despite the global semi-conductor shortage, Nokia’s third-quarter results came in firmly ahead of analyst expectations. In the third-quarter, the telecom giant posted 633 million euros in comparable operating profit, representing a 30% growth from the prior year. Analysts were expecting a comparable operating profit of 522 million euros.
Furthermore, Nokia generated net sales of 5.4 billion euros, which were 2.1% higher than last year. Sales growth was mainly driven by a 6% and 12% year-over-year improvement in the company’s network infrastructure and cloud and network services segments, respectively.
Moreover, Nokia has done exceedingly well again to improve its cost competitiveness. Hence, its gross margins came in at a healthy 40.3% for the quarter, compared to 34.8% last year. It also generated strong free cash flows of 0.7 billion euros.
Nokia has reiterated its sales outlook for the year, falling in the 21.7 billion euros to 22.7 billion euros range. However, its CEO states that supply chain troubles are likely to weigh in on its profitability. Lundmark states that “The uncertainty around the global semiconductor market limits our visibility into Q4 and 2022.” Moreover, the company is working with suppliers to ensure component availability and curb component cost inflation.
Nokia has picked up the pace of late in signing some major 5G contracts. Previously, it was lagging far behind its peers in the 5G race, but it’s now become a front-runner. It had recently benefitted from Ericcson’s (NASDAQ:ERIC) bad luck in China when Beijing struck back against Sweden banning Huawei.
Furthermore, Nokia’s mobile networks and cloud and network services segment are expected to grow briskly in the foreseeable future. The total addressable market for mobile networks is $53.4 billion and could grow at roughly 5%, excluding China. Moreover, the cloud and network services segment market are also at a colossal $30.2 billion.
Looking ahead, Nokia believes that it will expand its top and bottom lines at a stronger pace than its competitors through 2023. For that, it must continue to invest in research and development. Additionally, it will likely be reinstating its dividend soon, making NOK stock more attractive to new and existing investors. Nokia forecasts positive free cash flows, supported by robust operating margins.
Final Word On NOK Stock
Nokia wrapped up another strong quarter highlighted by decent revenue and margin growth. Though its supply chain issues may impact its fourth-quarter performance, it should perform exceedingly well in the long term. Its investments in the 5G realm have been paying off in a big way, and it will continue to garner more market share from its peers. Therefore, NOK stock is an excellent long-term investment in the 5G space.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.