Ericsson may be undervalued with poor growth indicators, but the 5 analysts following the company give it an rating of hold. Their target prices range from $6.4 to $10.6 per share, for an average of $8.87. At today's price of $10.21, Ericsson is trading 15.05% away from its average target price, suggesting there is an analyst belief that shares are overpriced for the stock.
Telefonaktiebolaget LM Ericsson (publ), together with its subsidiaries, provides mobile connectivity solutions to communications service providers, enterprises, and the public sector. Based in Stockholm, Sweden, the Large-Cap Technology company has 89,898 full time employees. Ericsson has offered a 29.2% dividend yield over the last 12 months.
Ericsson has a trailing twelve month P/E ratio of 12.9, compared to an average of 30.44 for the Technology sector. Considering its EPS guidance of $0.52, the company has a forward P/E ratio of 19.6.
On the other hand, the market is potentially undervaluing Ericsson in terms of its book value because its P/B ratio is 0.33. In comparison, the sector average P/B ratio is 4.19. The company's shares are currently 308.2% below their Graham number, indicating that its shares have a margin of safety.
The question is, why does Ericsson have a bad rating if it is apparently undervalued in terms of traditional metrics? One reason could be the company's disappointing rate of margin growth, which in the analysts' opinion, will continue in coming years.
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $227,216 | $232,390 | $232,314 | $271,546 | $263,351 | $247,880 |
| Gross Margins | 37% | 40% | 43% | 42% | 39% | 44% |
| Net Margins | 1% | 8% | 10% | 7% | -10% | 0% |
| Net Income (M) | $1,840 | $17,623 | $22,980 | $19,112 | -$26,104 | $374 |
| Net Interest Expense (M) | -$1,802 | -$596 | -$2,530 | -$2,411 | -$2,993 | -$1,724 |
| Depreciation & Amort. (M) | $8,599 | $7,978 | $8,458 | $10,142 | $11,157 | $10,020 |
| Diluted Shares (M) | 3,334,151,735 | 3,334,151,735 | 3,334 | 3,334 | 3,344 | 3,348 |
| Earnings Per Share | $0.67 | $5.26 | $6.81 | $5.62 | -$7.94 | $0.01 |
| EPS Growth | n/a | 685.07% | 29.47% | -17.47% | -241.28% | 100.13% |
| Free Cash Flow (M) | $16,873 | $28,933 | $39,065 | $30,863 | $7,177 | $46,261 |
| Total Debt (M) | $28,257 | $22,218 | $22,241 | $26,946 | $29,218 | $31,904 |
| Net Debt / EBITDA | -0.88 | -0.6 | -0.79 | -0.31 | 0.65 | -0.84 |
| Current Ratio | 1.32 | 1.31 | 1.38 | 1.19 | 1.2 | 1.17 |
