Shares of Ericsson (ERIC – Free Report) have climbed 29.1% in the past six months against a decline of 3.4% for the industry. It outperformed peers like Nokia Corporation (NOK – Free Report) and Motorola Solutions, Inc. (MSI – Free Report) .
The company is benefiting from solid sales growth in North America, driven by increasing network investments from large customers. Healthy improvement in free cash flow backed by improvement in inventory and supply chain management is a tailwind.
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ERIC Benefits From Robust Portfolio, Product Innovation
Ericsson is well positioned to cash in on the market momentum with its competitive 5G product portfolio. The company continues to execute its strategy to become a leading mobile infrastructure provider and establish a focused enterprise business. Its patent licensing business continues to perform well on the back of a strong intellectual property rights portfolio. Ericsson has accelerated its R&D investments in Digital Services to capture further opportunities.
With the emergence of the smartphone market and subsequent usage of mobile broadband, user demand for coverage speed and quality has increased in recent times. Further, to maintain superior performance as traffic increases, there is also a continuous need for network tuning and optimization. Ericsson is much in demand among operators to expand network coverage and upgrade networks for higher speed and capacity.
It is the world’s largest supplier of LTE technology, with a significant market share and has established a large number of LTE networks worldwide. Ericsson is focusing on 5G system development and has undertaken many notable endeavors to position itself for market leadership on 5G. Management’s focus on developing advanced 5G use cases for various industry-specific requirements is a tailwind.
Stiff Competition, Macro Uncertainty are Concerns for ERIC
The company is facing stiff competition from giant tech companies like Huawei and Nokia. The industry consolidation among customers and major rivals is posing a threat to Ericsson. Growing geopolitical volatility worldwide and economic uncertainties in some operating countries are major headwinds.
End Note
Solid demand in North America is likely to be a major growth driver for Ericsson. Its strong emphasis on innovation and portfolio expansion is expected to accelerate commercial expansion and solidify Ericsson’s position in the wireless equipment market. However, soft demand in Europe and the Asia-Pacific region remains a concern.
With a Zacks Rank #3 (Hold), ERIC appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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