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Can Nokia (NOK) Keep the Earnings Streak Alive?

Zacks Equity Research

Nokia Corporation (NOK) is set to release its first-quarter 2014 financial numbers before the opening bell on April 29, 2014.

In the prior quarter, the company’s earnings surpassed the Zacks Consensus Estimate by a margin of 83.33%. Let’s see how things are shaping up for this announcement.

Factors to Influence This Quarter

Nokia has received all the regulatory approvals to sell its handset business to Microsoft Corp. (MSFT). The deal is expected to close on April 25, 2014. Post the divestiture, Nokia wholly-owned subsidiary, Nokia Solutions and Networks (“NSN”) will become the company’s chief business division with approximately 90% of the total revenue.

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Recently, NSN has cut a deal with one of Israel’s leading telecom operators, Cellcom. A few months back, VimpelCom Ltd., the third largest telecom operator in Russia, selected NSN to provide equipment and services for its 4G LTE (Long-Term Evolution) network deployment plans.

NSN has also received a major 4G LTE network upgrade contract of nearly $416 million from EE, a leading U.K.-based wireless operator. Hence, continuous contract wins, aggressive deployment of 4GLTE network across China coupled with higher capital expenses related to network restructuring in emerging nations may bolster top-line growth for Nokia in the upcoming quarters.

On the flip side, Nokia has lowered NSN’s adjusted operating margin guidance for the first quarter of 2014. It expects margins in the range of 5% plus -- minus 4%. Moreover, the company’s decision to spend nearly $270 million in 2014 might dent its cash position. Also, the NSN segment is facing severe competition from Ericsson and Huawei.

Earnings Whispers

Our proven model does not conclusively show that Nokia is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Most Accurate estimate and the Zacks Consensus Estimate are poised at $0.04. Hence, the ESP is 0.00%.

Zacks Rank: Nokia’s Zacks Rank #1 (Strong Buy) which when combined with a 0.00% ESP makes surprise prediction difficult.

The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

We caution investors against the stock going into the earnings announcement, as a Zacks Earnings ESP of 0.00% combined with a Zacks Rank #1 lowers the possibility of an earnings surprise.

Other Stocks to Consider

Here are some other companies to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.

America Movil S.A.B. de C.V. (AMX) with Earnings ESP of +9.76% and Zacks Rank #3 (Hold).

RigNet, Inc. (RNET) with Earnings ESP of +11.11% and Zacks Rank #3.

Apple Inc. (AAPL) with Earnings ESP of +0.59% and Zacks Rank #3.

Read the Full Research Report on NOK
Read the Full Research Report on AAPL
Read the Full Research Report on AMX
Read the Full Research Report on RNET


Zacks Investment Research