Nokia Is Still Overvalued

Nov.14.10 | About: Nokia Corporation (NOK)

Nokia (NYSE:NOK) is having big problems in a rapidly changing mobile world it once dominated. There is a new CEO from Microsoft (NASDAQ:MSFT) and many new senior executives. The stock is way down from its all time highs. Nokia operated at a measured pace suitable for regulated telecommunications markets. But that business is no longer. The phone has been turned into a computer that can make calls by Apple (NASDAQ:AAPL). Google (NASDAQ:GOOG) has optimized that model, and has huge momentum with Android. Both are taking share from Nokia at the mid to high end of the wireless market. Things are moving much quicker----faster than Nokia is used to.

Investors have lost faith. But have they lost enough? In some respects Nokia is a broken company. It has problems at the high end from Apple, Google, and Microsoft. And it has problems at the low end with so called "white box" handset makers from Taiwain and China.

I believe that Nokia is too expensive at a $38 billion market cap. Sure it has some excess cash and little debt, but Nokia is only earning around $1.5 billion a year on its operations and it isn't growing. W
ith its business under intense pressure, this implies a more realistic market cap of $15b to $25b, which is quite a ways down for investors.

Nokia pays a huge portion of its earnings out to shareholders in the form of cash dividends. Businesses undergoing huge change tend to husband cash for strategic opportunities and restructuring. As such, a catalyst for downside pressure in Nokia could be a cut or elimination of the large dividend the company pays annually in the spring.


Disclosure: No position