Nokia Corporation (NOK) and Sprint Nextel Corporation (S) are two telecom related companies that had been under-stressed in the past few years. Sprint had been gaining positive momentum with its announcement of SoftBank and Clearwire deal. However, despite Lumia's positive feedback, NOK continued to decline in the past two months. Both companies have great potential for strong turnarounds and will be analyzed fundamentally and technically in this article. Investing strategies will also be presented.
NOK was down 2.10% and closed at $3.26 on March 25, 2013. NOK had been trading in the range of $1.63-$5.57 in the past 52 weeks. NOK has a market cap of $12.21B with a beta of 1.58. Despite the positive feedback for Lumia phones, NOK's share price continues to decline in the past 2 months. Investors need to watch closely for the short-term technical supports before establishing the long-term position.
On February 27, 2013, Argus upgraded NOK from hold to buy with a $6 price target. Analysts currently have a mean target price of $3.69 and a median target price of $3.13 for NOK. Analysts, on average, are estimating an EPS of -$0.05 with revenue of $8.70B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $0.06 with revenue of $38.36B, which is 3.30% lower than 2012. However, for 2014, analysts are predicting an EPS of $0.15 with revenue of $38.52B, which is 0.40% higher than 2013.
In early March, IDC had forecasted global smartphone shipments to total 918.6 million units in 2013. The total is an increase of 29 percent when compared to a year ago, but has slowed from last year's annual growth rate of 44 percent. Emerging markets will be the key areas for expansion, which including India, Brazil, and China (account for 33 percent of all smartphone shipments in 2013). NOK's share price had been declining since mid-January and Stoxx Ltd. had recently stated that NOK, the Finland-based company, will be removed from the Euro Stoxx 50 index.
Fundamentally, there are a few positive factors for NOK:
- Lower P/B and P/S of 1.2 and 0.3 (vs. the industry averages of 2.2 and 1.6)
- NOK has a total cash of $13.13B and a total debt of $7.25B with a book value of $2.81 per share
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend. The momentum indicator, RSI (14), is declining and indicating a strong selling momentum at 32.54. NOK is trading below its 50-day MA of $3.90 and is approaching its 200-day MA of $3.10, as seen from the chart below.
How to Invest
Nokia's competitive pricing strategy is on the right track for its target customers. Nokia's Lumia phones are also gaining traction to become the "cool" phones based on their new designs and bold colors. However, sales growth and margin improvement needed to be seen for any significant share price boost. In the near-term, two price levels of $3.10 (200-day MA) and $2.81 (book value) are two strong supporting level, which needed to be watched closely. For conservative investors, it is safer to wait for price stabilization to establish the long-term positions. Investors can also review the following ETFs to gain exposure to NOK:
- Nasdaq CEA Smartphone Index Fund (FONE), 2.86% weighting
- Multi-Asset Income ETF (CVY), 1.22% weighting
Sprint Nextel Corporation
Sprint was down 1.79% and closed at $6.03 on March 25, 2013. Sprint had been trading in the range of $2.30-$6.22 in the past 52 weeks. Sprint has a market cap of $18.15B with a beta of 0.99. The turnaround story continues for Sprint and more upside is expected upon completion of the SoftBank and Clearwire deal.
Analysts currently have a mean target price of $6.26 and median target price of $6.35 for Sprint, suggesting 3.81%-5.31% upside potential. Analysts, on average, are estimating an EPS of -$0.32 with revenue of $8.71B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of -$0.87 with revenue of $35.08B, which is 0.70% lower than 2012. However, for 2014, analysts are predicting an EPS of -$0.24 with revenue of $35.48, which is 1.10% higher than 2013.
As updated by Sprint Social Care Team, Sprint will be launching 2 Windows Phone 8 smartphones by summer, one each from Samsung and HTC. As said by Fared Adib, Sprint vice president of product development and operations,
Sprint has had a strong relationship with Microsoft (MSFT) for many years so we are excited to reinforce our commitment to the Windows 8 platform by sharing the details and timing for our first Windows Phone 8 smartphones. These smartphones bring a robust new operating platform with the benefit of Sprint's unlimited data plans. There is no doubt these phones will quickly become an extension of your PC experience right in the palm of your hand.
There are a few positive factors for Sprint:
- Sprint's Network Vision plan is aiming to consolidate multiple network technologies into one new, seamless network with the goal of increasing efficiency and enhancing network coverage, call quality and data speeds for customers across the United States
- Upon completion of the SoftBank's $20B deal, Sprint will significantly reduce its bottom line risk. With the Clearwire (CLWR) acquisition, Sprint will control more spectrum in the country than other any other carrier
Technically, the MACD (12, 26, 9) indicator is showing a bullish trend. RSI (14) is declining but still indicating a bullish lean at 59.83. Sprint is currently trading above its 50-day MA of $5.80 and 200-day MA of $5.08, as seen from the chart below.
How to Invest
With SoftBank's capital backing and Clearwire's spectrum, Sprint is in a much better position to compete with AT&T (T) and Verizon Communications (VZ). Sprint is a great buy with its much improved fundamentals. Investors can also review the following ETFs to gain exposure to Sprint:
- Dow Jones U.S. Telecommunications Index Fund (IYZ), 5.96% weighting
- Telecom ETF (VOX), 4.85% weighting
Note: All prices are quoted from the closing of March 25, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Additional disclosure: May initiate a long position in NOK