ERIC B: Evolving 5G Bans And New Contracts Will Shape Risk Reward Balance

Analysts have nudged up their price target on Telefonaktiebolaget LM Ericsson by SEK 5 to SEK 95, citing higher post Q3 revenue and margin expectations while maintaining a generally cautious stance on the shares.

Analyst Commentary

Recent target price revisions reflect a more constructive view on Ericsson's near term execution, tempered by lingering concerns over its longer term growth profile and industry headwinds.

Bullish Takeaways

• Bullish analysts highlight improved revenue and margin expectations following the Q3 report, supporting modest multiple expansion from current levels.
• Upward target revisions toward the mid to high SEK 90s signal confidence that operational efficiencies and cost controls can sustain better profitability than previously assumed.
• Some see 2027 valuation metrics as providing a floor for the shares, suggesting limited downside if Ericsson delivers against revised earnings trajectories.
• JPMorgan's higher triple digit target underscores the potential for upside should execution on strategic initiatives and network investment cycles track ahead of current consensus.

Bearish Takeaways

• Bearish analysts maintain an Underweight or Neutral stance, arguing that structural challenges in telecom spending and competitive intensity continue to cap long term growth.
• Earlier target cuts in the low SEK 60s range illustrate concerns that end market demand and pricing pressure could restrict margin expansion, even after recent improvements.
• Limited direct monetization from artificial intelligence trends is seen as a constraint on Ericsson's ability to capture premium valuation multiples versus broader tech peers.
• Some remain cautious that the recent rebound in estimates might prove cyclical rather than structural, leaving downside risk if operators delay or reduce network rollout plans.

What's in the News

• Germany and the wider EU are moving closer to binding bans on Huawei and ZTE equipment in 5G networks. This could shift European radio access market share toward alternative vendors such as Ericsson and Nokia (Light Reading, Bloomberg).
• China is scaling back the use of Ericsson and Nokia gear in domestic networks, subjecting new contracts to lengthy security reviews that favor local suppliers and underscore rising East West tech decoupling (Financial Times).
• VodafoneThree has selected Ericsson and Nokia for a GBP 2B network expansion contract, positioning Ericsson to deploy RAN technology across 10,000 sites as part of a major UK rollout (Bloomberg).
• Telia has extended its multi country RAN partnership with Ericsson under a four year deal spanning Sweden, Norway, Lithuania, and Estonia, reinforcing Ericsson's role in Northern European 5G coverage and innovation programs.
• Ericsson has secured an eight year, roughly SEK 12.5B agreement to power most of VodafoneThree's next generation UK mobile network, including sole nationwide core network vendor status and extensive 5G Standalone deployments.

Valuation Changes

• Fair Value Estimate unchanged at approximately SEK 87.4 per share, implying no revision to intrinsic value despite updated assumptions.
• Discount Rate risen slightly from about 6.33 percent to 6.39 percent, reflecting a modest increase in perceived risk or required return.
• Revenue Growth effectively unchanged, with the long term assumption remaining modestly negative at around minus 0.64 percent.
• Net Profit Margin stable at roughly 7.92 percent, indicating no material change in long run profitability expectations.
• Future P E nudged up slightly from 18.79x to 18.82x, signaling a marginally higher valuation multiple applied to forward earnings.