Merrill Lynch analyst Kai Korschelt reiterated a Buy rating on shares of Nokia Corp (ADR) (NYSE:NOK), with a price target of $6.00. Korschelt noted more modest investor expectations for IPR agreements following the disappointing Samsung IPR outcome. Though these hopes were once loftier for what now the analyst considers as a subdued “part of the Nokia story,” the analyst remains positive on the Apple Inc. (NASDAQ:AAPL) licensing renewal anticipated to come to pass by the end of this year.
Korschelt noted, “Consensus seems to bake in an Apple renewal at a conservative 22bps royalty rate of iPhone revenues. We expect a slightly higher rate (25bps) and see 4-8% upside to consensus EBIT in a potentially more positive scenario with a royalty rate of 30-40bps. With the stock in our view discounting no value for Nokia’s Technologies business and Networks revenues & margins set to improve into 2017&18, we reiterate our Buy rating.”
For now, from Korschelt’s view, “long-term licensing opportunity remains strong,” with smartphone OEMs like LG, Vivo, Oppo, and Xiamoi left to license. Once they do, Nokia could see an 11% CAGR boost in recurring licensing revenues by 2019.
“We expect newsflow on the Apple licensing renewal in the next 3-6 months. Further, Network margins & revenue declines should have troughed in 1H and Nokia will likely commence a E1.5bn share buyback in 4Q. Nokia will also host a CMD on 15th November, where we expect management to provide investors more visibility and establish a longer-term margin framework for its Networks business of >10%,” the analyst concludes.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, two-star analyst Kai Korschelt is ranked #2,361 out of 4,147 analysts. Korschelt has a 43% success rate and earns 0.7% in his yearly returns. However, when recommending NOK, Korschelt faces a loss of 20.1% in average profits on the stock.
TipRanks analytics indicate NOK as a Strong Buy. Based on 10 analysts polled in the last 3 months, 90% rate a Buy on NOK, while 10% maintain a Hold. The consensus price target stands at $7.38, marking a nearly 29% upside from where the stock is currently trading.