Expanding Into High-Growth Markets And Tactical Initiatives Will Boost Revenue And Margins

Key Takeaways

• Strategic expansions in high-growth sectors and cost reductions could enhance future revenue growth and improve net margins for Nokia.
  
• The Infinera acquisition and diversification into enterprise markets present opportunities to boost earnings and expand their total addressable market.
  
• Continued market challenges and regional sales declines are hampering growth, negatively affecting Nokia's revenue and operating margins.

Catalysts

Provides mobile, fixed, and cloud network solutions worldwide.

• Nokia is expanding its footprint in non-Communication Service Provider (CSP) customers, targeting high-growth areas like data centers, defense, and private wireless, which could drive future revenue growth.
  
• Positive developments in Fixed and IP Networks, particularly solid growth in North America and fading inventory issues, are likely to bolster revenue.
  
• The Infinera acquisition, expected to close in H1 2025, could enhance Nokia's scale in Optical Networks, particularly in North America, boosting earnings potential.
  
• Nokia's strategic cost reduction initiatives have resulted in €500 million in run-rate gross cost savings, which could improve net margins.
  
• Diversification into enterprise and webscale markets in IP Networks, driven by Nokia's technology leadership with FP5 and FPcx-based products, presents a significant opportunity to expand their total addressable market (TAM), enhancing future revenue streams.

Nokia Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nokia Oyj's revenue will decrease by -0.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.6% today to 8.7% in 3 years time.
• Analysts expect earnings to reach €1.7 billion (and earnings per share of €0.31) by about November 2027, up from €914.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €1.9 billion in earnings, and the most bearish expecting €983 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.7x on those 2027 earnings, down from 25.3x today. This future PE is lower than the current PE for the US Communications industry at 24.6x.
• Analysts expect the number of shares outstanding to grow by 0.76% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.03%, as per the Simply Wall St company report.

Nokia Oyj Future Earnings Per Share Growth

Risks

• Nokia faces slower-than-expected market recovery, particularly in Optical and Mobile Networks, which may continue to impact net sales and operating margins negatively.
  
• A decline in sales in certain regions, particularly India and North America, due to market dynamics and customer loss could impact Nokia's revenue generation and overall financial outlook.
  
• The divestment of parts of Cloud and Network Services has negatively impacted net sales growth, which could affect future revenue stability and operating margin.
  
• Nokia's revenue from Core Network and Enterprise segments is not yet meeting expectations, which could delay overall revenue growth and pressure operating margins.
  
• The slow release of government funds from programs like BEAD in the U.S. delays expected revenue recognition and may suppress anticipated growth in Network Infrastructure sales.

Valuation

• The analysts have a consensus price target of €4.31 for Nokia Oyj based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €6.0, and the most bearish reporting a price target of just €3.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €19.7 billion, earnings will come to €1.7 billion, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of €4.25, the analyst's price target of €4.31 is 1.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.