5G Private Networks And Fraud APIs Will Unlock Future Markets

Key Takeaways

• Leadership in programmable networks and key partnerships position Ericsson to drive new revenue streams and future growth through differentiated services.
  
• Resilient supply chain and strategic regional consolidation aim to enhance market share and improve net margins amid macroeconomic challenges.
  
• Intense competition, economic uncertainties, and declining service demand threaten Ericsson's market share, revenue stability, and profitability.

Catalysts

Provides mobile connectivity solutions to communications service providers, enterprises, and the public sector.

• Ericsson's leadership in programmable networks and new partnerships are expected to drive differentiated services, creating new revenue streams and supporting future revenue growth.
  
• The move from proof of concept to commercial deployment in 5G private networks, with highlights like Jaguar Land Rover's implementation, indicates future revenue increases as enterprise customers fully adopt 5G solutions.
  
• The scaling of the network API ecosystem, evidenced by the rollout of a fraud detection API with top U.S. operators, is likely to contribute positively to revenue growth as this market matures.
  
• While facing macroeconomic challenges, Ericsson has built resilience into its supply chain, aiming for better cost control which can improve net margins.
  
• Strategic consolidation of regional structures and strong execution in North America hint at potential earnings growth from increased market share and efficient market operations.

Telefonaktiebolaget LM Ericsson Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Telefonaktiebolaget LM Ericsson's revenue will grow by 1.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.6% today to 10.6% in 3 years time.
• Analysts expect earnings to reach SEK 27.4 billion (and earnings per share of SEK 6.37) by about April 2028, up from SEK 1.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.8x on those 2028 earnings, down from 166.0x today. This future PE is lower than the current PE for the GB Communications industry at 57.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.78%, as per the Simply Wall St company report.

Telefonaktiebolaget LM Ericsson Future Earnings Per Share Growth

Risks

• Intense competition from Chinese vendors in regions such as Latin America and India could lead to market share losses and pressure on revenues.
  
• The current macroeconomic turmoil and tariffs present uncertainties that could impact customer investment decisions, potentially reducing sales growth and affecting revenue stability.
  
• There is increased volatility in currency rates, which complicates revenue forecasting and could negatively impact reported sales and earnings if adverse fluctuations persist.
  
• The global economic uncertainty, which generally negatively affects investment climates, might lead to reduced or delayed investments by Ericsson's customers, impacting future revenues.
  
• Demand for Ericsson's services, an important revenue stream, has been declining, with Managed Services and Network Rollout seeing reductions, which could continue to affect the company's profitability if not reversed.

Valuation

• The analysts have a consensus price target of SEK81.556 for Telefonaktiebolaget LM Ericsson 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 SEK101.0, and the most bearish reporting a price target of just SEK57.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK258.5 billion, earnings will come to SEK27.4 billion, and it would be trading on a PE ratio of 11.8x, assuming you use a discount rate of 5.8%.
• Given the current share price of SEK80.2, the analyst price target of SEK81.56 is 1.7% 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.