NEW YORK (TheStreet) -- Shares of Ericsson (ERIC) - Get Report are falling by 0.09% to $11.09 in Wednesday afternoon trading, as the Swedish telecommunications company is figuring out how to tackle the Nokia (NOK) - Get Report - Alcatel Lucent (ALU) merger in order to stay ahead in the market, Bloomberg reports.
Ericsson so far has relied on smaller purchases, but the publication noted that there's a growing need by network providers to offer a more complete range of products.
"Ericsson can't seem to grow fast enough on the fixed side so scaling organically to compete isn't really possible," Mathias Lundberg, an analyst at Swedbank AB in Stockholm, told Bloomberg.
Nokia's $16.6 billion acquisition of Alcatel in April is set to surpass Ericsson in sales, Bloomberg added.
Next month, CEO Hans Vestberg plans to gather with his top managers to discuss plans on what the company can do to counter the Nokia-Alcatel deal.
TheStreet Ratings team rates ERICSSON as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate ERICSSON (ERIC) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- ERIC's debt-to-equity ratio is very low at 0.18 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.
- 41.35% is the gross profit margin for ERICSSON which we consider to be strong. Regardless of ERIC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ERIC's net profit margin of 2.46% is significantly lower than the industry average.
- ERICSSON's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over 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).
- ERIC, with its decline in revenue, underperformed when compared the industry average of 2.8%. Since the same quarter one year prior, revenues fell by 15.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: ERIC Ratings Report