Why Nokia Corp (ADR) (NYSE:NOK) Stock Is A Buy After Earnings

- February 2, 2017

Never-mind the revenue, EPS, and all the typical metrics you look at when a company reports earnings. Everyone knew that 2016 was a transition year for Nokia Corp (ADR) (NYSE:NOK) after its acquisition of Alcatel-Lucent SA (ADR) (NYSE:ALU). Nevertheless, NOK stock is higher by 5% despite a significant miss on the top-line, mainly because investors are amazed at the early signs of earning power from Nokia’s merger with Alcatel-Lucent.

Given how close we have followed Nokia stock over the last year, and that ALU stock provided gains of nearly 200% to the BNL Portfolio before the merger, we tend to think outside the box and realize what’s really important when earnings are announced. Here are three key takeaways from Nokia Corp’s fourth quarter and full year report, which further strengthen our outlook for NOK stock.

Nokia has a fighting chance against Apple

nok-stockNOK stock was well on its way to levels beyond $5/share before it filed complaints against tech juggernaut Apple Inc (NASDAQ:AAPL). NOK stock headed lower for many reasons.

First, Apple is really good in court. Second, turmoil with Apple suggests a drop-off in business with Apple. And finally, court proceedings take forever.

However, Nokia Corp made sure to explain that it and Apple had a previous license that expired the end of 2016, and the two companies had been at odds in trying to finalize a deal for Apple to license Nokia’s patents.

According to Nokia, there are 50 patents involved, related to display, user interface, software, antenna, chipsets, video coding, as well as 3G & 4G cellular standards.

Given that there had been a deal in place, I am quite confident from the filing that a new license agreement will be reached before it gets nasty in court. If not, I am now very optimistic that Nokia would in fact win.

Don’t forget, Nokia has one of the largest patent portfolios in the world covering smartphones, tablets, personal computers and similar devices. NOK stock owners should be optimistic.

Looks like the Alcatel-Lucent merger is going to work out

nok_stock_csco_stockNokia stock soared after earnings because the company beat EPS expectations by 0.04 euros, earning 0.12 euros per share. That’s a very significant beat.

Most investors see the beat but don’t dig deep enough to realize the cause. Nokia was expecting to achieve total cost savings of EUR400 million from Alcatel-Lucent merger synergies in 2016.

It actually achieved EUR550 million in cost savings, and did so despite EUR100 million in higher operating expenses from the merger versus what was expected. That’s quite remarkable, and really supports the notion that Nokia Corp will be successful in delivering annual cost savings of EUR1,200 million by 2018, or potentially more.

Ironically, I can’t help but to recall Cisco’s Chief John Chambers who said back in 2015 that “the odds are good” the merger between Nokia Corp and Alcatel-Lucent will fail. Clearly, the merger is not going to fail, and is going better than expected.

Up until Nokia’s acquisition of Alcatel-Lucent, no company had offered end-to-end solutions and services in the telecom equipment space, not even Cisco. The fact that Nokia’s transition has gone so smooth is a huge vote of confidence for the future.

Gearing up for the future

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