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Nokia (NOK) Pops on Future After Microsoft (MSFT) Sale

NEW YORK (TheStreet) -- Nokia (NOK) it has a future in its network equipment and software branches after it sells its phones division to Microsoft (MSFT). Shares jumped 9% to $7.36 Tuesday morning after reporting third-quarter results before the bell.

The Finnish tech company reported a net loss of 91 million Euros, compared to 969 million Euros a year earlier, and revenue dropped 20% year on year to 5.6 billion Euros.

Its devices division -- the unit Microsoft has purchased -- proved to be dead weight, with sales down 19% to 64.6 million units sold, compared to 83 million a year ago. Though sales in its most profitable Nokia Solutions and Networks (NSN) unit fell 33%, management expects to see growth in the segment in the final months of the financial year.

"The third quarter was among the most transformative in our company's history," said CFO Timo Ihamuotila in a statement. "Subject to the completion of the Microsoft transaction, Nokia will have significantly improved earnings profile, strong financial position and a solid foundation from which to invest."

Microsoft shares lost 0.6% to $35.35 as of 11 a.m. EDT.

TheStreet Ratings team rates Nokia Corp as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate Nokia Corp (NOK) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall."

TheStreet Ratings team rates Microsoft Corp as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate Microsoft Corp (MSFT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, attractive valuation levels and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MSFT's revenue growth has slightly outpaced the industry average of 7.9%. Since the same quarter one year prior, revenues rose by 15.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • MSFT's debt-to-equity ratio is very low at 0.20 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 2.65, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market, Microsoft Corp's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

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