Zacks' Bear Of The Day: Ericsson

| About: LM Ericsson (ERIC)
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Ericsson (NASDAQ:ERIC) used to be on the tip of the tongue of all telco investors. Today, not so much. Analysts have lowered numbers and it is now a Zacks Rank #5 (Strong Sell). It is the Bear of the Day today.

Earnings Over The Last Year

Of the last four earnings reports, ERIC has missed in three of them. Normally, I would write up about the misses as this is the Bear of the Day, but the singular beat has my attention.

It was the December 2013 quarter that the company posted EPS of $0.38 compared to the Zacks Consensus Estimate of $0.21. That $0.17 beat translated into an 81% positive earnings surprise...and here comes the interesting part. The stock moved up only 2.8% as a result. Most stocks that post a big of that magnitude see a much larger move in the stock price, but not ERIC.

In fact, the three misses were all rather small. Three cents, one cent and one cent respectively. But look at the stock reaction to each... -5%, -5.6%, -5.7%. Seems that investors wishing for good news, but they are not getting any.

Company Description

Ericsson provides telecommunications equipment and related services to mobile and fixed network operators. Ericsson was founded in 1876 and is headquartered in Stockholm, Sweden

Ericsson Phones

I did a Google search on the title above, because it has been a long time since I have even seen an Ericsson phone. Yes there were all over the place several years ago, but they seem to have all but disappeared over the last few years thanks to the iPhone and all the Android models.

ERIC Sees Estimates Moving Lower

The Zacks Consensus Estimate for 2014 for ERIC has been sliding for just about a year now. The number was as higher as $0.88 in June of 2013 but since then we have only seen it move in one direction. By January of this year it was down to $0.78 and it plunged to $0.69 in June.

The 2015 Zacks Consensus Estimate has also seen a significant drop, with estimates moving from $1.04 in December 2013 to $0.88 in March and are now at $0.79.


Despite the estimates falling, the company is still posting profits so it is trading close the industry averages. The forward earnings multiple of 18x is close to the 21x industry average, while the price to book multiple of 2x is half that of the 4x industry average.

The Chart

The price and consensus chart is a very useful tool for investors. Developed here at Zacks, we show how earnings estimates have moved in relation to the stock price. Investors that were long this stock would need only to look at this chart to see how the future was going to turn out. Estimates start the year at a high level and then sink lower. This stock is not something investors want to invest in until the estimates start to turn around.