JPMorgan: Time To Buy Ericsson

In a report published Thursday, JPMorgan analyst Sandeep Deshpande upgraded

from Neutral to Overweight, with a price target of $12.20, on expectations of a recovery in US spending. A potential recovery in US wireless infrastructure spending in 2H15 and 2016 is expected to benefit Ericsson. The company's 4Q14 network revenue from the US was even lower than what it saw in 2H11, after the end of the CDMA ramp in the US. "Though revenue improved in 1Q15, it remains close to cyclical low. The weakness is driven by end of coverage spending at the major carriers and lack of Ericsson exposure to the 2.5GHz radio coverage at Sprint," analyst Sandeep Deshpande mentioned. Ericsson's US wireless carrier spend was down 16.5 percent y/y in 1Q15 and the company guided to an FY capex decline of 4 percent. The company is expected to boost its capacity related spending once the recently acquired spectrum is cleared. "Additionally in early '16 high quality low frequency spectrum will be auctioned meaning a new capacity investment cycle should start in '16," Deshpande noted. Although Ericsson remains the number one player in the European wireless infrastructure segment, it needs to improve its margins substantially. In the report JP Morgan noted, "The ongoing SEK 9bn cost cutting plan which completes in '17 should help contribute to the improvement in margin. At our tech conference in Boston, Ericsson's CEO agreed that consolidation will likely improve margin."