3 Reasons Why BMO Thinks Nokia Will Outperform

Telecom company Nokia Oyj NOK is likely to take advantage of three catalysts in 2019 and beyond that offer investors an attractive entry point, according to BMO Capital Markets. 

The Analyst

Analyst Tim Long upgraded Nokia from Market Perform to Outperform with a price target lifted from $5 to $7.50.

The Thesis

BMO's Market Perform rating on Nokia's stock dates to late 2016; the stock was rangebound between $4 to $7 over the past three years, Long said in the Thursday upgrade note. (See his track record here.) 

Nokia stock now has a path to break above the $7 per share level for three reasons, the analyst said. 

First, total telecom spending should rise from 2018 levels by 2 percent, with equipment vendors like Nokia likely to benefit, Long said. Nokia boasts a diversified portfolio with exposure to multiple product lines like 5G, he said. 

Second, multiple Tier-1 service providers across the world publicly said they will not purchase technology from China's Huawei. This represents a multibillion-dollar global opportunity, and Nokia could win at least $1 billion in incremental revenue, Long said.

The Huawei development could help Nokia return to top-line growth after two years of contraction, the analyst said. 

Third, Nokia's IP routing and optical networks segments could see a strong 2019, Long said: the routing business could show a ramp in the FP4 chips, and the optical business could benefit from higher demand from web scale customers.

Price Action

Nokia shares were trading up by more than 5 percent to $5.85 at the time of publication Friday.

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