Increasing R&D investments will accelerate its growing portfolio of products. And when the technology ultimately shifts, as it always does in the telecom industry, Ericsson will maximize the O-RAN opportunity. Still, it will have a positive impact on its business model. CEO Ekholm does not expect O-RAN will contribute to the bottom line in the 2021-22 timeframe. And even though its customers like to maintain vendor diversity, Ericsson offers lower operating expenses and ultimately lower total cost of ownership for its solutions.Įmbracing Open RAN (O-RAN) positions the company for future software revenue growth. The continued market share growth is a positive catalyst that will support its revenue growth. To monetize its IPR, Ericsson will flex its strength by leveraging them in discussions with those who need it. The patents also add tremendous value to Ericsson’s research and development. They believe it will be a key contributor to its earnings.

For example, independent firms looked at its Intellectual Property Rights (IPR). Investors are overlooking its strength, which suggests the stock is worth more than the fair value calculated above.

The company’s 5G portfolio is ahead of the competition. The table below is a set of metrics that may best represent Ericsson’s fair value: Metrics Readers may build a 5-year discounted cash flow EBITDA Exit model. By comparison, Apple stock trades at a P/E approaching 40 times and a forward P/E of around 30 times. Its forward P/E is in the mid-teens multiple. Investors could buy shares of Ericsson and pay a price-to-earnings of no more than 25 times. Ericsson’s CEO thinks that strong iPhone sales will drive demand for its network equipment. Apple’s (NASDAQ: AAPL) launch of the 5G iPhone is a positive catalyst in the consumer space. The gross margin will also improve as it adjusts to declining markets such as in Europe. On its conference call, CEO Ekholm said that the company expects momentum from its North American market continuing into 2021. Excluding restructuring charges, the operating margin topped 22.7%. Sales from the Networks division increased by 6% Y/Y. Its gross margin rose to 43.1%, up from 37.7% Y/Y.

Whereas other mega-cap network suppliers failed to crack this market, Ericsson is thriving. Sales rose 7% compared to last year, thanks primarily to 5G sales in Mainland China. The bearishness ended after the company posted results on Oct. Markets tried to pull Ericsson below the $11 range in Sept. By holding the slow-moving, low volatility Ericsson stock, patient investors will earn a decent long-term return.

Ericsson play