Nokia Deluged With Downgrades

Jun. 2.11 | About: Nokia Corporation (NOK)

By Angus Robertson

The downgrades are rolling in from analysts after Nokia (NYSE:NOK) downgraded itself on Tuesday, saying its handset sales would fall far short of expectations.

Jennifer Fritzsche, Wells Fargo: Reiterated a Market Weight rating on Nokia, while cutting her range of possible stock values to $6.90 to $7.40, from a prior $9 to $10. “While NOK has continued to say that 2011 is a transition year, we believe today’s announcement highlights how quickly the shift is occurring in the competitive environment. While we believe the Windows phone could be a transitional even for NOK there is still much to prove, in our view and much integration risk that comes with such an event.” (Barron's)

Alkesh Shah, Evercore Partners: Reiterated an Underweight rating and cut his price target to $6 from $8, writing that the company is not yet in the “transition trough,” arguing that the stock is “not cheap at 28 times our fiscal 2012 EPS forecast,” or 18 times, when factoring in cash per share. Smart phones are going to be under pressure from low-end smart phones, while Nokia’s feature phones will face competition from “white box manufacturers.” Things may “worsen over the next few quarters,” Shah thinks, and “consensus estimates may still not be low enough.” (Barron's)

Pierre Ferragu, Bernstein Research: Cut his rating on the stock to Underperform from Market Perform, chopping his price target on the shares to $4 from $7.33. “We believe the new guidance issued by the company ... is a strong indication that our worst case scenario is crystallizing,” he writes. “We now believe Nokia’s Device business will experience operating losses in the third quarter of this year and in the first quarter of next year. We also believe the launch of Windows-based phones will be challenging, given the likely loss of traction and visibility of the Nokia brand, as well as the speed at which the opportunity for a third ecosystem to emerge is vanishing.” (Forbes)

Richard Windsor, Nomura: Cut price target on Nokia shares to 4.00 euros from 4.75 euros and kept his Reduce recommendation. ”We are concerned that the erosion that the company has suffered in Q2 is just the beginning and that there could be worse to follow.” (Reuters)

Mike Walkley, Canaccord Genuity: Cut his rating to Hold from Buy and cut his price target to $8 from $11, writing that he is “increasingly concerned about sales for Nokia’s Symbian devices during the transition period.” (Barron's)

Rod Hall, JP Morgan Cut price target to 4.25 euros from 5 euros. (Reuters) Hall has been one of more prescient analysts on Nokia. in February he cut his rating on the stock to Sell from Buy with a price target of $7. Last December he had a target of 10 euros, or $13.50. “As we leave 2010 in the rear view mirror it is now time to look forward as the company embarks on a new strategy with a new CEO. We are concerned that short term execution difficulty represents high risk to 2011 and possibly 2012 earnings,” he wrote then.

Didier Scemama, Royal Bank of Scotland: Retained Sell rating and cut target price to 4.50 euros from 5.25 euros. The bank said Nokia is only just starting to feel the effect of strong competition from Google's (NASDAQ:GOOG) Android operating system in emerging markets. The bank said the launch of low-cost Android models from Asian rivals could further dent Nokia’s profitability, and it is not convinced that Nokia’s switch to Microsoft's (NASDAQ:MSFT) Windows operating system in the fourth quarter will substantially improve gross margin. (Dow Jones Newswires) In February, Scemama had cut Nokia’s price target from 10 euros to 5.80 euros and downgraded the company to Sell from Buy, saying, “While we see Nokia’s OS strategy shift as potentially positive in the longer term, we are concerned about the risks associated with the transition to WP7 over the next two to three years. Meanwhile, competition is likely to intensify at a time when Nokia is weak.”

Tim Boddy, Goldman Sachs: Cut his rating to Neutral from Buy and price target to 5.20 euros from 8.80 euros, writing that the company’s “rapid market share loss threatens Nokia’s distribution advantage.”

“With Nokia unlikely to have a full Microsoft-based smart phone lineup across all price points before mid-2012, risks to revenues remain material, threatening Nokia’s ability to retain its distribution relationships and retail footprint when new products arrive.” (Barron's)

Hannu Rauhala, Pohjola Markets: Cut his recommendation on Nokia shares to “accumulate” from “buy” but was still more optimistic than others, saying it was unclear whether Asian rivals could keep taking market share through price cuts. “We have seen these kinds of situations in history before,” he said. “I wouldn’t make far-reaching conclusions yet if we are talking about device manufacturing.” (Reuters)

Among other analysts actions:

  • WestLB cut Nokia to reduce.
  • Credit Suisse cut its Nokia target price to 4 euros from 5.50 euros.
  • Deutsche Bank cut target price for Nokia to 4.20 euros from 5.50 euros.
  • S&P cut its target price to 5.40 euros from 6 euros.

Moody’s placed Nokia Corp.’s credit ratings on watch for downgrade, citing the cellphone maker’s recent warning of continued weakness in its handset business.

Moody’s noted the unexpectedly fast erosion in the company’s market share for smart phones and core mobile phones, as well as accelerating price pressures. It said the environment could see Nokia start selling Windows Phones at a substantially weaker market position. Moody’s has Nokia at A3, four notches above junk territory. (Dow Jones Newswires)