Ericsson (OM:ERIC B): Evaluating Valuation After Strong Q3 Earnings and Landmark Vodafone, EDC Deals

Telefonaktiebolaget LM Ericsson (OM:ERIC B) has caught the attention of investors this week, following an impressive third-quarter earnings report and two major new partnerships with Vodafone and Export Development Canada.

See our latest analysis for Telefonaktiebolaget LM Ericsson.

Momentum is certainly shifting for Ericsson, with shares racing higher on the back of upbeat earnings and headline-grabbing new partnerships. After a year of modest progress, the stock’s recent surge, including a 23.1% share price return over the last 90 days, shows growing optimism about its growth prospects. The company’s total shareholder return is up 4.2% over the past year, underscoring a notable reversal of fortune as investors respond to stronger profitability and high-profile technology deals.

If Ericsson’s winning streak has you wondering what other tech leaders are making headlines, it’s a great moment to discover See the full list for free.

After this strong run and a wave of positive headlines, the key question is whether Ericsson’s recent rally signals a real bargain for investors, or if the market has already factored in all the future growth potential.

Most Popular Narrative: 14% Overvalued

With Telefonaktiebolaget LM Ericsson trading at SEK89.52, the most followed narrative suggests fair value is closer to SEK78.44, indicating the market may have run ahead of itself. To understand why, let's look at one of the key catalysts behind this consensus.

Expansion of AI-powered applications and edge compute is expected to significantly boost network data traffic. This will require further buildout and modernization of telecom infrastructure where Ericsson has strong product and R&D positioning, providing a long-term tailwind to both revenues and gross margins.

Read the complete narrative.

Curious which powerful forces are shaping this bold valuation? Analysts built their models around transformative shifts in profitability, market share, and the technology landscape. See what numbers and assumptions could tip the next major move.

Result: Fair Value of $78.44 (OVERVALED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, ongoing geopolitical tensions and persistent pricing pressures from fierce industry competition could quickly dampen Ericsson's recent momentum if conditions worsen.

Find out about the key risks to this Telefonaktiebolaget LM Ericsson narrative.

Another View: Our DCF Model Tells a Different Story

While many investors focus on analyst price targets and multiples to judge value, our SWS DCF model takes a different approach. By projecting Ericsson’s future cash flows, the DCF suggests shares may actually be undervalued by as much as 33%. This indicates more potential upside than market multiples imply. Could the long-term opportunity be greater than most expect?

Look into how the SWS DCF model arrives at its fair value.

Build Your Own Telefonaktiebolaget LM Ericsson Narrative

If you see things differently or prefer hands-on analysis, you can dive into the numbers yourself and craft your own story in just a few minutes. Do it your way

A great starting point for your Telefonaktiebolaget LM Ericsson research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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