Goldman Sachs Sees 51% Upside in Nokia (NOK), Adds to Conviction Buy List

(Updated - September 14, 2015 8:41 AM EDT)

Goldman Sachs upgraded Nokia (NYSE: NOK) from Buy to Conviction Buy with a price target of €8.7 ($9.50 per ADR). Analyst Alexander Duval pointed out the stock's attractive valuation at 9x 2018E EPS. He also said he is confident in deal synergies with Alcatel-Lucent (NYSE: ALU) and noted sizable capital returns.

Duval explained, "Nokia has underperformed our EU tech coverage by 18% ytd. In our view this reflects an overly bearish outlook for the wireless market, caution on the proposed ALU deal, and fears of large patent delays. By contrast, we see scope for margin improvement given industry consolidation, while Nokia should have a competitive advantage vs. Ericsson given its converged portfolio. Moreover, Nokia’s management has a strong track record in cost control, underpinning our confidence in its synergy target. Finally, we see scope for sizeable capital returns following the deal. In this context, we view the current PF 9x 2018E EPS (6x ex-cash) as attractive; remain Buy, onto CL."

"We expect the proposed offer period with Alcatel to open in late 2015 (pending Chinese approval), and close in early 2016, allowing Nokia to bring forward its capital return plan. Moreover, we continue to expect Nokia to reach a 9.7% EBIT margin in Networks in 2015, and see longer-term improvement potential given industry consolidation, more rational pricing, and continued effective cost control. Finally, we expect one of Nokia’s patent arbitrations to be resolved in the coming months (as per company), and continue to see longer-term upside from improved patent monetization," added the analyst.

For an analyst ratings summary and ratings history on Nokia click here. For more ratings news on Nokia click here.

Shares of Nokia closed at $6.51 yesterday.

SI NOTE: This upgrade was tagged as a StreetInsider "Hot Upgrade", available daily to StreetInsider Premium members here.

Separately, StreetInsider.com Premium members can track SI mentions of the Goldman Sachs' Conviction Buy List here.

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