A favorite among retail investors and Reddit users in recent months, Nokia’s ADR has gained 52% so far this year, already marking its best annual performance since 2013. Shares are up 0, 6% Wednesday at $ 5.92.

JP Morgan analysts Sandeep Deshpande and Varun Rajwanshi moved stocks from neutral to overweight, and the price target to $ 7.80 versus $ 5.88 (the price target of

Nokia

was increased to € 6.50 from € 4.99.

This follows Nokia’s plans to increase forecasts on Tuesday, which analysts said was likely “just the start of the upgrade cycle, driven by rising mobile network gross margin.”

“We believe investors should position themselves for the upgrade cycle which is expected to continue to unfold over the next 12 months, with an implied 30% hike in our new € 6.5 PT,” analysts said. .

JP Morgan’s upgrade follows last month’s bullish turn on the stock of

Goldman Sachs

and an upgrade from Morgan Stanley in May.

Pekka Lundmark, president and CEO of Nokia, announced last October a plan to streamline the company and do “whatever it takes” to lead in the 5G space. This was accompanied by a reduction in forecast for 2020, blamed on the loss of a large North American customer – believed to be a

Verizon

contract that has been awarded to

Samsung.

The company announced in March a € 600 million cost reduction program aimed at boosting investment in 5G.

Verizon’s loss was “more than reflected in the estimates,” analysts at JP Morgan said, who noted that the current consensus is that Nokia Mobile Networks sales are down € 626 million over the course of the year. fiscal year 21 when the market for radio access networks, part of mobile telecommunications systems, is expected to grow by 10.5%, according to analysts at Dell’Oro group.

And due to its limited exposure to China, Nokia is expected to grow at perhaps half the market growth, or 10.5% in FY21, which would lead to implied annual revenue. of 10.807 billion euros against a current consensus of 9.773 billion euros. “We believe that this shows that the consensus is currently overestimating lost sales, and that this loss will be from 600 million euros at the bottom to 800 million euros at the top (against 1.034 billion euros implicit)”, have analysts said.

Analysts have presented two possible scenarios for a recovery in the gross margin of Nokia’s mobile network business through 2024. One assumes that sales will return to 2019 levels based on gains outside the United States. , with a gross margin of 40% in one case and 44% in the best case, which is in line with its rival

Ericsson.

These scenarios result in earnings per share of € 0.46 and € 0.56, respectively.

JP Morgan has increased its estimates for 2021 and 2022 by 2.2% and the gross margin estimates for the entire year slightly. This translates into a 22.3% and 21.3% increase in comparable earnings before interest and tax (EBIT) estimates in 2021 and 2022.

“The shares are trading at 19.5x / 16.4x ’21 / ’22 EPS, but upgrades are likely in the years to come and the market will look at those years as the recovery gathers pace,” said Deshpande and Rajwanshi.

The company will release its financial results for the second quarter and half of 2021 on July 29.

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