Recommendation Summary
Ford's Hold recommendation on Nokia Corp. is the result of our systematic analysis on three basic characteristics: earnings strength, relative valuation, and recent stock price movement. The company has generated a negative trend in earnings per share over the past 5 quarters and while recent estimates for the company have been raised by analysts, NOK has posted better than expected results. Based on operating earnings yield, the company is undervalued when compared to all of the companies we cover. Share price changes over the past year indicates that NOK will perform very poorly over the near term.
Earnings Strength is NEGATIVE
Ford's earnings momentum measures the acceleration or deceleration in trailing 12 month operating earnings per share growth. The downward curvature of the plotted points in the graph on the right indicates that while Nokia Corp.'s earnings have increased from $0.25 to an estimated $0.36 over the past 5 quarters, they have shown deceleration in quarterly growth rates when adjusted for the volatility of earnings. This is an indication of weakness that could lead to declining earnings.
Nearly 40 years of research have shown that the change in the growth of earnings per share is an important factor that drives stock price performance. Ford measures earnings momentum and analysts' forecast changes to get an early indication of changing earnings patterns.
Recent changes to analysts’ forecasts and variances between reported and estimated earnings provide important information about a company’s future earnings performance. Ford uses this information, in conjunction with earnings momentum, as early evidence of a catalyst to near-term stock price performance. Earnings forecasts for Nokia Corp. have been increasing which indicates an improvement in future earnings growth. The company has also reported higher earnings than those predicted in earlier estimates. This indicates an ability to exceed analysts’ expectations and the potential for improving earnings growth in the future.
Relative Valuation is POSITIVE
Nokia Corp.'s operating earnings yield of 7.3% ranks above 79% of the other companies in the Ford universe of stocks, indicating that it is undervalued. Ford measures the relative valuation of each company against all other companies in our research universe. Operating earnings yield, an earnings-to-price ratio based on the last 3 quarters of operating earnings and the current quarter's estimate, has proven to be the most reliable relative valuation measure. A stock may stay undervalued or overvalued for a long period of time. For this reason, it is important to combine this factor with shorter-term predictive factors such as earnings momentum or price momentum to identify more imminent valuation adjustments.
Price Movement is VERY NEGATIVE
Nokia Corp.'s stock price is up 43.3% in the last 12 months, up 17.5% in the past quarter and up 18.6% in the past month. This historical performance should lead to below average price performance in the next one to three months.
Historical price action of a company's stock is an especially helpful measure used to identify intermediate and short term performance potential. Long term historical performance is a good predictor of future price performance, but much more importantly, large price movements over the intermediate and short term tend to reverse themselves. Ford's price momentum measure integrates historical long, intermediate and short term price changes, creating ratings that are highest for stocks with strong twelve month price performance that have had a price consolidation in the past quarter and month.
No comments:
Post a Comment