Nokia Corporation (NOK) shares appear to be in freefall, and it does not look like this trend is coming to an end soon. This once formidable mobile phone maker has been threatened with severe competition from the likes of Apple (AAPL) and others. While many investors have tried to catch the bottom in Nokia this year, the news from the company has not been good lately.
Nokia reported a first quarter of 2012 loss of about $1.7 billion on sales of $9.6 billion. That kind of loss is unsustainable for many quarters, and to make matters worse, the company just announced a steep price cut for its flagship "Lumia 900" smartphone. The company slashed the price in half in an attempt to boost demand. That most likely means two things: The phone is not selling as well as expected, and profit margins are going to be hit hard in the future quarters by the price cut. It's important to remember that this company is facing not just competitive threats, but also major economic headwinds as this company is based in Europe.
1) The company is expected to report earnings on July 19, for the
second quarter of 2012. Most analysts expect the company to report a loss. Based on the price cut news for the Lumia 900 phone, and the continued losses, it could also make sense for the company to suspend the dividend entirely. Earlier this year, the company already cut the dividend by about half, but that did not appear to go far enough. In fact, considering the losses, the decline in market share, and profit margins, it no longer appears to be responsible for this company to continue paying any dividend. A suspension of the dividend may not be announced when earnings are released this quarter, but it looks like a real possibility by the end of 2012. As Supervalu (SVU) shareholders just saw a roughly 50% drop in the stock price after that company suspended the dividend, it is a reminder of how quickly stocks can fall when the stock loses support from dividend investors.
2) Another looming problem is the fact that there appears to be no strong catalyst for the shares to rally in the next couple of quarters. Since we are now in the 3rd quarter, the 4th quarter is coming next and that is when stocks that have underperformed typically see additional selling pressure from investors who are harvesting tax losses. Nokia shares could see a selling climax around November to December, based on this and the other factors mentioned above, and that is why the stock continues to have little appeal or any bottom in sight.
Here are some key points for NOK:
Current share price: $1.69
The 52 week range is $1.69 to $7.38
Earnings estimates for 2012: a loss of 30 cents per share
Earnings estimates for 2013: near break-even results
Annual dividend: 18 cents per share which yields 9.6%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
