How Nokia Could Have Over 60% Upside After the Alcatel-Lucent Merger

Technology

Published: January 17, 2016 10:20 am

Last Updated: January 13, 2020 2:55 pm

With 2016 off to the worst start of any year’s market, most investors are wondering where they should be putting their money. The massive growth stocks are taking it on the chin and valuations are still sky-high, and anything tied to oil and commodities has been in free fall, with no fundamental recovery in sight. For those who still are brave enough to risk the stock market, that pretty much leaves value stocks and other beaten-down stocks that may be bargains as potential investments for the long term. One research firm believes that a huge opportunity for gains awaits Nokia Corp. (NYSE: NOK) after it completes the Alcatel-Lucent S.A. (NYSE: ALU) acquisition.

The independent research firm Argus raised Nokia’s rating to Buy from Hold on Friday as the Alcatel-Lucent merger nears completion. What stood out was that the firm’s $12.00 price target on Nokia’s American depositary shares was over 15% higher than the $10.35 street-high analyst target of $10.35, according to Thomson/First Call. All in all, this left more than 62% upside from the prior $7.38 close. For those investors looking at Nokia after the call, the major sell-off on Friday took shares to $7.16, implying more than 67% upside, without even considering that Nokia pays a dividend to boot.

Before investors just run out and blindly buy here, there are some things to consider. The first is that Argus now has the highest listed price target by far. That means that the firm’s view is more rosy than any other bullish analyst report you will read. Another consideration is that the lowest price target we saw in the Thomson/First Call universe was $7.00, and that the consensus (mean) target was $9.10. Analysts are greatly divided here, with almost 75% difference from the lowest price target to the new highest target.

One last consideration before thinking that this may be a fast elevator ride into the stratosphere is that both Nokia and Alcatel-Lucent have had a long history of problems and more than just a few disappointments. Integrating companies from France and Finland, along with all those global offices and operations, almost certainly will not come without some hiccups along the way.

OK, so you have been warned that the huge potential upside called for in Nokia (with Alcatel-Lucent) has some serious caveats. Argus sees great synergies and growth potential from the merger. Argus thinks that Nokia is now able to deliver comprehensive solutions from fixed and wireless networks to service providers and other carriers. Its ability to offer integrated solutions is also expected to be a powerful marketing tool for companies and carriers that are concerned about minimizing costs at the same time they have to maintain and improve the security on their networks.