Ericsson (ERIC) Stock Rises on Cisco Partnership

Ericsson (ERIC) stock is gaining after the company agreed to partner with Cisco (CSCO) to boost network performance.
By Amanda Gomez ,

NEW YORK (TheStreet) -- Ericsson (ERIC) - Get Report stock is increasing 1.68% to $9.99 in late morning trading on Monday after the company agreed to a strategic partnership with Cisco Systems (CSCO) to improve network speed and reliability, increasing sales by more than $1 billion each by 2018.

The companies plan to collaborate on 5G networks as well as on cloud, Internet protocol and the Internet of Things products.

The partnership will entail multiple agreements, including system-based management and control, a broad resale agreement and emerging markets collaborations.

Ericsson will also receive license fees from Cisco as part of a licensing agreement for their patent portfolios.

"Initially the partnership will focus on service providers, then on opportunities for the enterprise segment and accelerating the scale and adoption of IoT services across industries," Ericsson CEO Hans Vestberg said in a statement. "For Ericsson, this partnership also fortifies the IP strategy we have developed over the past several years, and it is a key move forward in our own transformation."

Separately, 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 revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and disappointing return on equity.

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

  • ERIC's revenue growth has slightly outpaced the industry average of 9.6%. Since the same quarter one year prior, revenues slightly increased by 0.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • ERIC's debt-to-equity ratio is very low at 0.19 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.45, which illustrates the ability to avoid short-term cash problems.
  • ERICSSON has improved earnings per share by 22.2% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ERICSSON reported lower earnings of $0.45 versus $0.58 in the prior year. This year, the market expects an improvement in earnings ($0.63 versus $0.45).
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Communications Equipment industry and the overall market on the basis of return on equity, ERICSSON has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • ERIC has underperformed the S&P 500 Index, declining 15.76% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
  • You can view the full analysis from the report here: ERIC

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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