As the world becomes increasingly interconnected, an ever-growing number of individuals depend on telecom services for communication, entertainment, work, and daily routines. Moreover, emerging technologies such as 5G, Artificial Intelligence (AI), and the Internet of Things (IoT) offer substantial growth prospects for companies operating within this space.
Given the backdrop, in this article, we explore the fundamentals of two communication equipment companies, Nokia Oyj (NOK) and Motorola Solutions, Inc. (MSI), which are well-equipped to capitalize on the robust demand for these emerging technologies.
The communication equipment industry is in a strong position for substantial long-term growth, fueled by the strong demand for 5G technology. The market size of 5G connections is projected to be around $106.64 billion in 2023, with an anticipated expansion to $990.33 billion by 2028, reflecting a robust CAGR of 56.2% during the forecast period spanning from 2023 to 2028.
Moreover, global 5G connections are set to exceed 1.90 billion by the end of this year. This projection outlines an impressive trajectory, with forecasts indicating a whopping 6.80 billion global 5G connections by the conclusion of 2027. This indicates an annual average growth of nearly one billion new connections, underscoring the significant scope and impact of the 5G technology landscape.
Additionally, government investments in the telecom industry play a crucial role in strengthening the industry's outlook and potential. For example, the Biden-Harris Administration introduced a $1.50 billion Innovation Fund with the goal of boosting the competitiveness and diversity of the telecommunications supply chain.
Furthermore, rising internet penetration, growing digitization, technological advancements, widespread 5G adoption, and increasing multimedia and gaming demand are key factors driving the global smartphone industry. The smartphone market is projected to increase from 1.45 billion units in 2023 to 1.78 billion units by 2028, exhibiting a CAGR of 4.1% from 2023 to 2028.
Given the promising outlook, investors could benefit from keeping a watch on NOK and MSI. Let us dig deeper into the fundamentals of the two Technology – Communication/Networking picks, beginning with number 2.
Stock #2: Nokia Oyj (NOK)
Headquartered in Espoo, Finland, NOK provides mobile, fixed, and cloud network solutions globally. The company operates through four segments: Mobile Networks; Network Infrastructure; Cloud and Network Services; and Nokia Technologies. It serves communications service providers, webscales, digital industries, and the government.
On August 30, NOK unveiled a new patent cross-license agreement with Apple Inc. (AAPL). Commenting on this, Jenni Lukander, President of NOK, said, “We are delighted to have concluded a long-term patent license agreement with Apple on an amicable basis. The agreement reflects the strength of Nokia’s patent portfolio, decades-long investments in R&D, and contributions to cellular standards and other technologies.”
Additionally, on the same day, NOK revealed a strategic partnership with NTT Ltd. aimed at extending private wireless networking solutions to over 3.2 million enterprises in Thailand. This collaboration seeks to expedite digital transformation, leading to tangible enhancements in productivity, operational efficiency, and worker safety.
These Nokia 5G private wireless solutions will be implemented at various enterprise business parks throughout Thailand, fundamentally transforming crucial business applications and use cases across sectors crucial to the nation's economy, including manufacturing, mining, healthcare, and education.
NOK’s trailing-12-month net income margin of 16.43% is 710.6% higher than the 2.03% industry average. Its trailing-12-month ROCE of 20.64% is significantly higher than the 1.01% industry average. Furthermore, the stock’s trailing-12-month EBIT margin of 10.15% is 124.8% higher than the 4.51% industry average.
For the fiscal second quarter that ended June 30, 2023, NOK’s net sales from the Nokia Technologies segment came in at €334 million ($363.35 million), representing an increase of 9.5% year-over-year.
During the same period, the company’s profit for the period came in at €289 million ($314.31 million), while its earnings per share stood at €0.05. Also, its total current liabilities came in at €11.51 billion ($12.52 billion), declining 9.9% compared to €12.77 billion ($13.17 billion) as of December 31, 2022.
Street expects NOK’s revenue for the third quarter (ending September 2023) to increase 4.4% year-over-year to $6.38 billion. While its EPS for the same quarter is expected to be $0.09. Also, Its EPS is projected to improve by 6.7% per annum over the next five years. The company topped its revenue estimates in three of the trailing four quarters, which is promising.
Over the past month, the stock has gained 1.5% to close the last trading session at $3.99.
NOK’s POWR Ratings reflect this promising outlook. It has an A grade for Value. In the 52-stock Technology - Communication/Networking industry, it is ranked #13. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Click here to see NOK’s ratings for Growth, Momentum, Stability, Sentiment, and Quality.
Stock #1: Motorola Solutions, Inc. (MSI)
MSI provides public safety and enterprise security solutions in the United States, the United Kingdom, Canada, and internationally. The company operates in two segments: Products and Systems Integration; and Software and Services.
On August 31, MSI declared a regular quarterly dividend of $0.88 per share, payable to its shareholders on October 13, 2023. The company’s annual dividend of $3.52 translates to a 1.24% yield on the prevailing prices, while its four-year average dividend yield is 1.37%.
Its dividend payouts have grown at CAGRs of 11.3% and 11.1% over the past three and five years, respectively. Also, it has a record of 10 years of consecutive dividend growth.
On May 24, MSI announced that it had been chosen to supply 13,000 VB400 body-worn cameras to officers of His Majesty’s Prison and Probation Service in England and Wales. The VB400 body-worn camera offers high-quality video and audio recording, and features an automatic pre-recording capability to ensure a record of every interaction from start to finish.
By capturing unbiased video and audio evidence, this deployment is set to improve not only the safety of officers but also foster trust and transparency among both staff and prisoners. This development underscores the trust and widespread utilization of MSI’s technologies by public safety agencies and organizations worldwide.
The stock’s trailing-12-month net income margin of 15.71% is 675.3% higher than the 2.03% industry average. Its trailing-12-month ROTC of 22.78% is 822.3% higher than the 2.47% industry average. Furthermore, MSI’s trailing-12-month EBIT margin of 24.27% is 437.7% higher than the industry average of 4.51%.
For the fiscal second quarter, which ended on July 1, 2023, MSI’s net sales increased 13.4% year-over-year to $4.57 billion, while its gross margin rose 31.1% from the year-ago value to $2.24 billion.
In addition, the company’s attributable net earnings and EPS amounted to $649 million and $3.76, up 31.1% and 30.6% from the prior-year quarter, respectively. Also, its operating earnings grew 53.6% year-over-year to $917 million.
The consensus revenue estimate of $2.52 billion for the third quarter (ending September 2023) represents a 6.2% increase year-over-year. The consensus EPS estimate of $3.02 for the current quarter indicates a marginal improvement year-over-year. Moreover, the company has an excellent surprise history, surpassing the revenue and EPS estimates in each of the trailing four quarters.
MSI’s shares have gained 15.7% over the past year and 10% year-to-date to close the last trading session at $283.57.
MSI’s sound fundamentals are reflected in its POWR Ratings. It has a B grade for Growth, Sentiment, and Quality. Within the same industry, it is ranked #11. Click here to see MSI’s ratings for Value, Momentum, and Stability.
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MSI shares were trading at $282.82 per share on Friday afternoon, down $0.75 (-0.26%). Year-to-date, MSI has gained 10.46%, versus a 18.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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