May 21, 2021
Here is the article.
Nokia Corporation (NOK - Get Rating) is a Finland-based company engaged in the network and Internet protocol (IP) infrastructure, software, and related services market. The company’s networks segment comprises Mobile Access, Fixed Access, IP Routing, and Optical Networks businesses. NOK serves communications service providers, governments, large enterprises, and consumers.
BlackBerry Limited (BB - Get Rating) provides security software and services to enterprises and governments worldwide. The company leverages artificial intelligence (AI) and machine learning to deliver solutions in the areas of cybersecurity, safety and data privacy, and offers endpoint security management, encryption, and embedded systems.
The networking industry witnessed rising demand for its products and services over the past year owing to rapid adoption of remote working and learning. In fact, the global Data Center Networking market is expected to grow at a 7.2% CAGR over the next five years to reach $20.94 billion by 2025.
While NOK lost 2.2% over the past nine months, BB surged 83.1%. In terms of their past month’s performance, NOK is a clear winner with 19.1% gains versus BB’s 0.8% returns. But, which of these stocks is a better pick now? Let’s find out.
On May 18, 2021, NOK announced that it will supply its Digital Operations software, cloud infrastructure software and AirFrame servers to help PLDT, a Philippines-based telecommunications company, and its wireless unit, Smart Communications, transform nationwide networks and standardize virtualization environments. With the help of NOK’s solutions, PLDT and Smart will be able to reduce operating costs and increase customer satisfaction by automating service, network and cloud operations. Its success should result in a long-term partnership with NOK.
NOK was chosen by Telefónica’s Latin American brand, Movistar Chile, on May 10, to provide AirScale technology equipment for launching Movistar’s 5G network in Chile. NOK will also upgrade the company’s 4G and 4G+ networks to strengthen the critical network backbone across Chile’s key markets. Supported by Movistar’s fiber optics, NOK’s high-speed mobile technology is moving to deliver next generation connectivity to enterprises and end users in Latin America.
On May 17, BB launched BlackBerry Optics 3.0, its next-generation cloud-based endpoint detection and response (EDR) solution, and BlackBerry Gateway, the company’s first AI-empowered Zero Trust Network Access (ZTNA) product. Available since the second quarter of 2021, the company hopes these products, rooted in a prevention-first and AI-driven approach, will provide enhanced visibility and protection against current and future cyberthreats.
Chinese electric carmaker WM Motor, selected BB’s QNX software portfolio on May 6 to power its advanced W6 SUV model. BB QNX’s outstanding safety, cybersecurity and reliability enables WM Motors to focus on creating an extraordinary driving experience for its customers. This would make BB a trusted partner for the automotive industry.
Recent Financial Results
NOK’s net sales for its fiscal year 2021 first quarter, ended March 31, 2021, increased 3.3% year-over-year to €5.08 billion ($6.21 billion). Its net sales from the network infrastructure segment increased 21.7% year-over-year to €1.73 billion ($2.11 billion). The company’s gross profit came in at €1.93 billion ($2.36 billion), up 10.9% from the prior-year period. Its operating profit came in at €431 million ($578.73 million), compared to a loss of €76 million ($92.99 million) in the first quarter of 2020. Its net profit is reported €263 million ($321.79 million), compared to a loss of €115 million ($140.71 million) in the prior-year period. And its loss per share came in at €0.05, compared to a loss of €0.02 in the year-ago period.
For its fiscal year 2021 first quarter, ended February 28, BB’s adjusted revenue declined 26.1% year-over-year to $215 million. The company’s adjusted gross profit has declined 29.1% year-over-year to $158 million. Its adjusted operating income came in at $18 million, which represents a 64.7% year-over-year decline. Its adjusted income came in at $16 million for the quarter, down 68.6% from the prior-year period. And, its adjusted EPS was $0.03, which represented a 66.7% year-over-year decline.
Past and Expected Financial Performance
NOK’s EBITDA grew at a 2,9% CAGR over the past three years. And the company’s total assets have declined at a rate of 2.1% over the past three years.
Analysts expect NOK’s revenue to increase 4.2% year-over-year for its fiscal year 2021 second quarter (ending June 30, 2021), marginally in the current year, and 2% in 2022. Its EPS is expected to decline by 30.9% year-over-year for the second quarter, but then increase 11% for the current year and 8.4% in 2022. NOK’s EPS is expected to grow at a rate of 16.5% per annum over the next five years.
In comparison, BB’s EBITDA grew at a 12.8% CAGR over the past three years. The company’s total assets have fallen at a rate of 9.3% over the past three years.
Analysts expect BB’s revenue to decline 20% in its fiscal year 2021 second quarter (ending May 31, 2021), and 10.3% in 2022, but increase 15.4% in 2023. However, its EPS is expected to decrease 350% in the second quarter, 127.8% in the current year, and 220% next year. Furthermore, its EPS is expected to fall at a rate of 21.9% per annum over the next five years.
Profitability
NOK’s trailing-12-month revenue is 28.9 times BB’s. NOK is also more profitable with a 10% gross profit margin versus RBLX’s negative value.
Also, NOK’s ROA and ROTC values of 3.6% and 6.5%, respectively, compare with BB’s negative values.
Valuation
In terms of forward non-GAAP P/E for the next fiscal year, BB is currently trading at 111.76x, 608.2% higher than NOK, which is currently trading at 15.78x. Also, NOK’s forward EV/sales of 0.94x is significantly lower than BB’s 6.15x. In terms of forward EV/EBITDA, BB’s 106.72x is 1328.6% higher than NOK’s 7.47x.
Thus, NOK looks more affordable here.
POWR Ratings
While BB has an overall D grade, which translates to Sell in our proprietary POWR Ratings system, NOK has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
In terms of Sentiment, NOK has been graded an A, which is in sync with the company’s revenues and earnings growth potential expected by analysts. In comparison, BB’s Sentiment Grade of F is consistent with unfavorable analyst sentiment.
NOK has a B grade for Value. This is justified because its forward EV/EBITDA of 7.47x, which is 54.6% lower than the 16.45x industry average. However, BB has a C grade for Value. This is in sync with the company’s higher-than-industry forward EV/EBITDA value.
Of 55 stocks in the B-rated Technology – Communication/Networking industry, NOK is ranked #10 and BB is ranked #52.
Beyond what we’ve stated above, our POWR Ratings system has also rated both NOK and BB for Momentum, Stability, and Quality. Get all NOK ratings here. Also, click here to see the additional POWR Ratings for BB.
The Winner
The demand for networking is expected to remain high in 2021. As 5G technology is set to be available commercially this year, both NOK and BB are well-positioned to capitalize on the industry tailwinds. However, NOK appears to be a better buy based on its stable financials and higher profitability.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Technology – Communication/Networking industry.
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