Why Goldman Sachs Upgraded Nokia

Nokia Oyj NOK shares gained 9% on Friday after the popular Reddit stock landed a high-profile Wall Street upgrade.

The Analyst: Goldman Sachs analyst Alexander Duval upgraded Nokia from Neutral to Buy and raised his price target from $4.90 to $6.50.

The Thesis: Duval said Nokia has lagged competitor Telefonaktiebolaget LM Ericsson ERIC significantly over the past three years given Nokia’s market share losses, negative earnings revisions and lagging wireless equipment quality. However, Duval said Nokia may finally be positioned to exceed expectations and expand its earnings multiple in the coming quarters.

Duval has raised his 2021 to 2023 revenue forecasts for Nokia by 1% to 3% and his EBITDA forecasts over the same period by 10% to 17%.

“The changes are largely driven by our more positive view on market growth and scope for market share gains in wireless (especially in 2022 onwards), which flow through to improved EBIT margin forecasts given operating leverage,” he said in the note.

Why Nokia Stock Is Squeezing Friday — And What's Next

Duval noted improving demand in the global wireless market as a whole as the 5G upgrade cycle ramps up. A recent discussion with the Ericsson CFO suggests demand in Europe may be ramping up, while Duval said U.S. demand has been strong for some time.

Nokia shares started out 2020 trading under $4, but the stock skyrocketed as high as $9.79 back in January when it was targeted by Reddit’s WallStreetBets community. The stock quickly crashed back down to as low as $3.75 in early March, but has been steadily trending higher since then.

Benzinga’s Take: Social media pump-and-dump campaigns provide quick trading opportunities, but Goldman’s upgrade based on business fundamentals is much better news for Nokia’s long-term investors. Even after the rally in recent months Nokia shares still trade at just 16.8 times forward earnings estimates, and if Goldman is correct, those estimates could be headed higher in the near future.