Nokia Corporation (NOK), once the world's largest seller of mobile phones, has in recent years lost substantial market share to Apple's (AAPL) iPhone and manufacturers using Google's (GOOG) Android operating system. The company has partnered with Microsoft Corporation (MSFT) to use the Windows Phone operating system and has released a few of these phones to positive reviews.
As Nokia's market share has declined, so too has it's share price. The stock, trading above $40 per share in 2007, now trades at $2.83 per share. In July of this year, the stock reached a low of $1.63 per share.
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With a turn-around strategy under way the stock is highly speculative at this time, as future profits are impossible to predict. But what about the bonds?
There are two different bonds issued by Nokia on the market, both trading substantially below par.
* Data from FINRA
The bond maturing in 2019 currently sells at 85.250 and offers a yield of 8.289%. The price has dropped substantially since the beginning of the year and traded below 80 in the last few months.
The Balance Sheet
Let's take a look at Nokia's balance sheet to make sure the debt level is sustainable. As of the end of Q2 2012 Nokia has 8.9 billion euros ($11.1 billion USD) in cash and cash-equivalents compared to 5.2 billion euros ($6.5 billion USD) in debt. Nokia has enough cash to completely cover its debt and then some, resulting in a solid balance sheet. Couple this with a positive, albeit declining, free cash flow and it appears that Nokia should have no problem servicing its debt in the foreseeable future.
With yields at historic lows, bonds that offer 8%-plus yields are an exception, rather than the norm. Nokia bonds, with one maturing in just seven years, offer yields above 8% backed by a strong balance sheet and positive cash flow. The long-term success of the company rests on the adoption of the Windows Phone operating system, but it appears that the company is in a strong enough financial position to weather a prolonged period of weakness.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.