What’s Next For Ericsson Stock?

Ericsson stock (NASDAQ: ERIC) has increased by about 26% year-to-date, outperforming the broader indices. Ericsson posted better-than-expected Q2 results, with revenue declining 7% but beating expectations, driven by a 5G licensing deal that boosted revenue and margins. Ericsson’s revenue for the quarter declined by 7% year-over-year (y-o-y) to SEK 59.8 billion ($64.4 billion), with net income (loss) of SEK -11 billion, including a SEK -11.4 billion impairment impact. The company’s Q2 EPS was SEK -3.34 compared to -$0.21 in the year-ago quarter. Sales in North America grew by 15% y-o-y, due to increased network sales. However, this was partly offset by a decline in India – where investment levels have normalized after a record year in 2023. Overall sales to the South East Asia, Oceania, and India region fell 44% y-o-y in Q1. That said, margins have increased with ERIC’s adjusted gross margins growing to 43.9% up from 38.3% in the year-ago period, due to a higher mix of sales from the U.S. – which is seen as a high-value market. Going forward, the company’s guidance suggests that no fundamental shift is underway toward meaningful new deployments. Ericsson’s long-term growth trajectory is anticipated to remain sluggish unless strategic initiatives focused on midband 5G and the Industrial Internet of Things (IIoT) generate substantial momentum. The company’s revenue growth is currently projected to be low single digits, with modest operating leverage potential. It should be noted that the company’s second-half sales are expected to benefit from contract deliveries in North America.

Notably, ERIC stock has performed worse than the broader market in each of the last 3 years. Returns for the stock were -7% in 2021, -44% in 2022, and 13% in 2023.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period.

Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could ERIC face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

We forecast Ericsson Revenues to be $23.5 billion for the fiscal year 2024, down 6% y-o-y. Given our revenues and EPS forecast changes, we have revised Ericsson Valuation to $7 per share, based on a $0.53 expected EPS and a 13.2x P/E multiple for the fiscal year 2024. That said, the company’s stock appears expensive at the current levels, with our valuation at a 10% discount from the current market price.

It is helpful to see how its peers stack up. Check out how ERIC’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

While investors have their fingers crossed for a soft landing for the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

[1] Returns as of 9/26/2024
[2] Cumulative total returns since the end of 2016