Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

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Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

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Company History Continued Cellular network since 1981 First transportable phone, 1984: weighed 4.8 kilos Divesting successfully since ,96: sold off cable and tv industries Went public in 1995 (on NYSE) Pioneered GSM (global system for mobile comm. As of 1997, 59 agreements in 31 countries

Transcript of Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Page 1: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Stock Analysis: Feb. 15, 2001Joel Bauman

Nokia Oyj (NOK)

Page 2: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Company Overview

• Leading worldwide supplier of mobile phones and a leader in the supply of mobile, fixed and IP networks.

• Listings on six major exchanges. • Founded in 1865 in Finland as a paper milling co.• First entered telecommunications in 1960• Streamlined company during 1990s to focus on

telecommunications.

Page 3: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Company History Continued

• Cellular network since 1981• First transportable phone, 1984: weighed 4.8

kilos• Divesting successfully since 1992• 1995,96: sold off cable and tv industries• Went public in 1995 (on NYSE)• Pioneered GSM (global system for mobile

comm. As of 1997, 59 agreements in 31 countries

Page 4: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Trendy Handsets

• Emphasis on personal technology of personal communication: DESIGN

• Innovated large graphic display, ringing tones, colored covers, battery signals, etc.

• Simplicity and Style: Highly standardized products good for production, too

• Significant economy of scale--at least 2 times that of nearest competitor (MOT)

• 18 new phone models in 1999 alone

Page 5: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Acquisitions

• At least 4 major divisions: Internet Communications, Networks, Mobile Phones, Communication Products

• All of which have been gobbling up companies increasingly in past 3 years, for enhancing IP networks & telephony, broadband

• 15 acquisitions, 6 divestures• Some have been expensive: $335M for Network

Alchemy

Page 6: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Financial Overview

• FY 2000, sales rose 54% to EUR30.38 billion. Revenues reflect order inflow in Nokia Networks and increased sales of Nokia Mobile Phones.

• Net income rose 53% to EUR3.94 billion. Earnings reflect higher operating margins.

• Total of 60,000 employees; little outsourcing• In 1999, sold products in over 130 countries

Page 7: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Wireless Warriors

Q4 2000 Numbers NOK MOT ERICYRevenues 9.284B $7.736B $8.327B

Gross Income 3.342B $3.135B $1.927BNet Income 1.204B $0.199B $0.228B

Gross Margins 36.0% 40.5% 23.1%Net Margins 13.0% 2.6% 2.7%R&D Budget 764M $815M $1365MR&D Percent 8.3% 10.5% 16.4%

Market Capitalization $139.2B $42.44B $77.06B

Page 8: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Prospects for 2001

• Revised forecast = 23-36 % growth, rather than projected 45% growth in 2000

• Continued product launches: GPRS (2.5G) by 3rd quarter (rudimentary internet); 3G a year later; R&D continues at 8.5% sales

• Some outsourcing to cutback on costs (800 jobs recently cut in Texas--compare with MOT and ERICY)

• Stock target price: $42 (revised from $55)

Page 9: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Branding

• Ranked the #5 most valuable worldwide brand in 2000 at $38.5B. (KO #1, MSFT #2, IBM #3, INTC #4, GE #6, F #7, DIS #8, MCD #9, T #10)

• Up 86% from 1999 ($20.6B); ranked higher than AT&T (#10) and Motorola (#49)

• Popular and recognizable ring• Sugar Bowl game sponsorship

Page 10: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Networking

• New network contracts within the past two weeks alone include ventures into Bolivia (GRPS--general packet radio service) and Hong Kong (TETRA--Terrestrial truncated radio system). Also, Venezuela.

• First nationwide TETRA system implemented in Finland--will gradually replace existing radio networks--good for government/military purposes

• Nokia Telelcommunications changed its name to Nokia Networks a couple of years ago.

Page 11: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Market Share

• Currently 32% of all handsets sold• Twice that of Motorola and 3 times that of

Ericsson• Plans to increase share to 35% by end of

year, if not higher, even though sales esimates expected to decrease from 550M to 500M units. 1 billion handset sales by the end of 2002.

Page 12: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

• 12-Feb-01 Wit SoundView upgrade: from Buy to Strong Buy• 30-Jan-01 Raymond James downgrade from Strong Buy to Mkt

Perform • Salomon Smth Brny downgrade: from Outperform to Neutral • 23-Jan-01 Dresdner Klnwrt Bnsn downgrade from Reduce to Sell• 19-Jan-01Mrgn Stnly Dn Wttr downgrade: from Outperform to Neutral• 18-Jan-01 JP Morgan initiated: at Buy • 5-Jan-01 Dain Rauscher Wessels initiated: at Buy Aggressive • 19-Oct-00 Chase H&Q upgrade: from Buy to Strong Buy• 18-Oct-00 First Union Sec downgrade:from Strong Buy to Buy• 13-Sep-00 Sands Brothers initiated: at Buy

Recent Analysis

Page 13: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Current Recommendations

• Despite downgrades, 23 out of 26 analysts recommend NOK as either a strong or moderate buy.

• No one recommends sell --taken from Yahoo! Finance “research” option

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Stock Chart

Page 15: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

NOKIA CORP (NYSE:NOK) - More Info: News , Msgs , Profile , Research , Insider , Options

Last Trade2:33PM · 29.70

Change+1.47 (+5.21%)

Prev Cls28.23

Volume15,438,700

Div DateApr 10, 2000

Day's Range28.5 - 29.75

BidN/A

AskN/A

Open0.00

Avg Vol13,619,545

Ex-DivApr 11, 2000

52-week Range26.4900 - 62.5000

Earn/Shr0.76

P/E37.14

Mkt Cap139.2B

Div/Shr0.19

Yield0.68

Stock Quote

Page 16: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

1 Year Relative Performance

Page 17: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

1 Year Relative Performance

Page 18: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Valuation

NOK MOT ERICYShare Price $29.51 $19.44 $9.812000 EPS $0.73 $0.84 $0.172001 EPS $0.88 $0.83 $0.25Dividends $0.19 $0.16 $0.06

Yield 0.68% 0.84% 0.61%P/E (2000) 40.4 23.1 57.7P/E (2001) 33.5 23.4 39.4

5 Yr Earn Grow 26.8% 18.5% 24.9%PEG (2001) 1.25 1.26 1.58

Page 19: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Valuation Continued

NOK MOT ERICYShare Price $29.51 $19.44 $9.81Price/Book 14.92 2.23 8.60Price/Sales 4.86 1.15 2.47

Current Ratio 1.47 1.22 1.32Debt/Equity 0.14 0.57 0.05

Return on Assets 24.34% 3.05% 9.35%Return on Equity 47.67% 6.59% 25.76%

Return Equity = Effectiveness of management in using retainednet income and turning it into additional net income.

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Revenue Comparison

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Earnings Per Share Comparison

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Page 22: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Why Buy?

• At a P/E of 37, NOK seems to be heavily undervalued compared to the rest of the Telecom sector, which has an average P/E of 100

• Bottom Fishing? 52 week low occurred yesterday during trading.

Page 23: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Review

• Industry leader and pioneer• Strong sales, earnings growth• Global expansion• Two-pronged attack: mobile phones and

networks (fixed, mobile, and IP)• Keen sense of consumer and business trends• Possibly undervalued company due to investor

anxiety over recent growth warnings

Page 24: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

Caution

• Warned that will not meet first quarter growth expectations--but is 35% so bad?!?

• Penetrance rate in Europe = 60%, much higher in Scandinavia

• Growth from replacement phones not as fast as anticipated--data traffic (2nd gen) phones unnecessary if applications and networks not up to date

• New competition from Siemens, Sony

Page 25: Stock Analysis: Feb. 15, 2001 Joel Bauman Nokia Oyj (NOK)

The Future

• Short term: Aggressive take over of market share from Motorola, Ericsson; only one left standing in 3 years

• Concentrate on network infrastructure until data traffic becomes realistic option.

• Long term: commitment to broadband solutions, wireless data applications, increasingly user-friendly mobile devices and third-generation mobile telephony