Even With Alcatel Integration Woes, Why Nokia Shares Could Rise 70% or More

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Nokia Corp. (NYSE: NOK) recently reported its second-quarter financial results, which highlighted challenges in a mature wireless networks market poised between decelerating 3G/4G demand and the promise of 5G. This was also the initial quarter that would reflect the inclusion of Alcatel-Lucent. As a result, one key analyst weighed in on the direction of Nokia.

Argus has a Buy rating for Nokia with a $10 price target. The firm expects the combined company to face near-term challenges, but believes that it is well positioned for the development and roll-out of 5G networks over the next several years.

Nokia recently announced an initiative in which HMD Global will create Nokia-branded mobile phones and tablets. The firm does not expect the return of Nokia-branded phones to materially impact overall results this year, though it should contribute to the Nokia Technologies segment, which has shown good growth.

Nokia CEO Rajeev Suri expects the 5G roll-out to be uneven and prolonged. The company believes that 5G could launch in a small number of markets, but relatively quickly. Those markets might include the United States, Japan, Korea and China. In other countries, 4G and “4.5G” could prevail for some time. In all markets, 4G and 5G will exist side by side for many years.

Nokia acquired Alcatel-Lucent amid a lull in major mobile deployments, though the coming of 5G networks could rekindle top-line growth over the long term. Meanwhile, the pursuit of ubiquitous broadband should benefit assets acquired with Alcatel-Lucent.

Argus detailed in its report:

We expect the combined company to face near-term challenges, but believe that it is well positioned for the development and rollout of 5G networks over the next several years. Nokia recently announced an initiative in which HMD Global will create Nokia-branded mobile phones and tablets. We do not expect the return of Nokia-branded phones to materially impact overall results this year, though it should contribute to the Nokia Technologies segment, which has shown good growth. Nokia acquired Alcatel-Lucent amid a lull in major mobile deployments, though the coming of 5G networks could rekindle top-line growth over the long term. Meanwhile, the pursuit of ubiquitous broadband should benefit assets acquired with Alcatel-Lucent.

Shares of Nokia were trading at $5.75 on Monday, with a consensus analyst price target of $7.02 and a 52-week trading range of $5.01 to $7.63.