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Why Ericsson (ERIC) Is Down Today

NEW YORK (TheStreet) -- Ericsson (ERIC) fell 1.2% to $11.88 Wednesday after CEO Hans Vestberg reportedly told the board he has no intentions of stepping down.

According to Bloomberg, Vestberg recently said at a board meeting that he is committed to the company. Vestberg was recently linked to Microsoft's (MSFT) search for someone to replace outgoing CEO Steve Ballmer. Ericsson directors were ready to look at a list of potential candidates to take Vestberg's place in case he was chosen.

TheStreet Ratings team rates ERICSSON as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate ERICSSON (ERIC) 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 increase in net income, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and weak operating cash flow."

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

  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Communications Equipment industry average. The net income increased by 16.4% when compared to the same quarter one year prior, going from $408.63 million to $475.70 million.
  • Although ERIC's debt-to-equity ratio of 0.19 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.49, which illustrates the ability to avoid short-term cash problems.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • Net operating cash flow has significantly decreased to $237.50 million or 77.53% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Communications Equipment industry and the overall market, ERICSSON's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: ERIC Ratings Report

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