Will This Acquisition Help Ericsson (ERIC) Stock?

NEW YORK (TheStreet) -- Ericsson (ERIC) announced on Tuesday that it has entered into an agreement to acquire the privately held U.S.-based company MetraTech Corp.

Ericsson, an information and communications technology solutions provider, is buying the metadata-based billing company in order to expand its expertise in billing, accelerate its cloud capabilities, and its geographic presence in the U.S.

"Ericsson will gain capabilities to support customers, partners and suppliers in multiple industries and accelerate the creation and delivery of new value-added services," the company said.

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Terms of the deal were not disclosed. 

Shares of Ericsson are lower by -0.71% to $12.66 in early afternoon trading on Tuesday.

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 impressive record of earnings per share growth, compelling growth in net income and largely solid financial position with reasonable debt levels by most measures. 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."

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

  • ERICSSON reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ERICSSON increased its bottom line by earning $0.58 versus $0.28 in the prior year. This year, the market expects an improvement in earnings ($0.75 versus $0.58).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 76.5% when compared to the same quarter one year prior, rising from $212.63 million to $375.25 million.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Communications Equipment industry and the overall market, ERICSSON's return on equity is below that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $261.03 million or 59.91% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • You can view the full analysis from the report here: ERIC Ratings Report
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