Nokia: A 10.5% Yield But Plenty Of Room To Fall

Jan.20.12 | About: Nokia Corporation (NOK)

Nokia (NYSE:NOK) has been a popular value stock over the past few years as the stock has sold off significantly due to fundamental issues with the company. The stock has continued to struggle this year. However, it may be worth a closer look here for a turnaround situation.

Valuation wise, the story is mixed. Nokia's 5 year trailing valuation metrics give a mixed message as two of the metrics suggest that it is undervalued and the other suggests that it is overvalued. Nokia's current P/B ratio is 0.9 and it has averaged 3.4 over the past 5 years with a high of 8.1 and a low of 0.9. Nokia's current P/S ratio is 0.3 and it has averaged 1.0 over the past 5 years with a high of 2.3 and a low of 0.3. Nokia's P/E ratio is 26.1 and it has averaged 23.2 over the past 5 years with a high of 112.5 and a low of 9.1.

On a forward P/E basis, the stock is expensive. Nokia is currently trading at $5.21 a share and analysts expect the company to report earnings of $0.33 a share next year for a forward P/E of 16. Revenues are expected to slip half a percent. Ericsson (NASDAQ:ERIC) is a close comparison company of Nokia's and trades at $9.55 with analysts expecting EPS of $0.93 per share next year for a forward P/E of 10. Revenues are expected to grow 3.4% for Ericsson next year.

Analysts as a whole are also not strongly bulls or bears. The consensus price target for the analysts who follow Nokia is $6.63. That is upside of 27%. That doesn't scream buy or short.

On the bright side, earnings reports have been good. NOK has beat EPS estimates the past 4 quarters with beats ranging from 5-6 cents. The company also sports a nice dividend. Nokia has paid a dividend since 1996 on its U.S. ADRs. The company pays a dividend once a year and its last dividend was 54.5 cents paid out last May. At today's prices, that would be an annual dividend yield of 10.5%.

Click to enlarge
(Click to enlarge)

Technically, it does not look good as just when you thought the stock was setting a bottom, it went on to set a new 52 week low. The stock has lost about 50% of its value over the past year, falling from nearly $12 a share to as low as $4.46. Nokia was stable from June to about December when the stock again tumbled and set new 52 week lows at $4.46. It has rallied since then to over $5 a share to its current level of $5.21. The stock is trading just below its 50 day moving average, which sits at $5.55, and well below its 200 day moving average, which sits at $6.44. On the upside, the $5.40 level should serve as resistance followed by $5.75 and $6. On the downside, $5 should provide some support followed by $4.50.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.