Telefonaktiebolaget LM Ericsson
Telefonaktiebolaget LM Ericsson (Ericsson) (NASDAQ: ERIC) provides infrastructure, services and software to the telecommunication industry and other sectors. The Company' s segments include Networks, IT & Cloud and Media.
Recent Financial and Business Updates:
- Financial Performance Overview: In the third quarter, Ericsson reported results aligning with its guidance. Group organic sales saw a year-on-year decline of -10%, with the Networks segment experiencing a -16% decline, partially offset by organic growth in Cloud Software and Services as well as Enterprise. Reported sales decreased to SEK 64.5 billion (-5%), and the gross margin, excluding restructuring charges, stood at 39.2%, primarily influenced by changes in the business mix in Networks.
- EBITA and Net Income Analysis: The reported EBIT was SEK -28.9 billion, significantly impacted by a SEK -31.9 billion impairment of goodwill related to the acquisition of Vonage. EBITA, excluding restructuring charges, amounted to SEK 4.7 billion, with an EBITA margin of 7.3%. The net income (loss) was SEK -30.5 billion, resulting in an EPS diluted of SEK -9.21. Excluding the goodwill impairment, net income was SEK 1.4 billion.
- Cash Flow and Long-Term Targets: Free cash flow before M&A was SEK -0.5 billion, influenced by lower EBIT and increased working capital related to large deployment projects. The net cash position on September 30, 2023, was SEK 1.6 billion. Ericsson maintains its long-term EBITA margin target of 15-18%, aiming to achieve it as soon as possible, contingent on market mix recovery.
- Q3 2023 Financial Performance: In terms of financial performance, net sales for Q3 2023 were SEK 64.5 billion, showing a 5% decrease compared to the same period in 2022. The gross margin was 38.4%, and the EBIT margin was -44.8%, influenced by the impairment of goodwill. EBITA margin, excluding restructuring charges, was 5.9%. Net income (loss) for the quarter was SEK -30.5 billion, with an EPS diluted of SEK -9.21.
- Outlook and Strategic Initiatives: Regarding future outlook and strategic initiatives, Ericsson acknowledges the challenging operating environment, anticipating macroeconomic uncertainty into 2024. The company is focused on managing costs and operational efficiency, including a fundamental repositioning of the business. Emphasis is placed on leadership in mobile networks, enterprise business growth, and cultural transformation. President and CEO Börje Ekholm highlights the commitment to resilience, openness, sustainability, and intelligence in future networks, with Open RAN integral to this vision.
- Segment Performance and Vonage Acquisition: The Cloud Software and Services segment achieved EBITA break-even on a rolling four-quarter basis, indicating progress in the turnaround. Despite challenges in the Networks segment, the gross margin remained robust. Ericsson's strategic acquisition of Vonage faced a SEK -32 billion impairment, attributed to macroeconomic headwinds impacting market conditions.
- Q4 Projections and Proactive Measures: Looking ahead to Q4, Ericsson expects similar market trends as in Q3, with an increased impact from cost-out measures, projecting a group EBITA margin of around 10%. The underlying uncertainty in the Mobile Networks business is anticipated to persist into 2024. The company remains proactive in addressing challenges, focusing on cost reduction while safeguarding investments in technology leadership and long-term transformation.
Technical Observation (on the daily chart)
The Relative Strength Index (RSI) over a 14-day period stands at 77.42, currently near overbought zone, with expectations of some consolidation or a healthy correction before the continuation of the upward momentum. Moreover, the price is currently positioned above both the 21-day SMA and 50-day SMA trend-following indicators, which may act as dynamic short-term support levels. The stock has given a decent upward movement in past few sessions, with an expectations of some correction before the trend continuation.
As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a “WATCH” rating is recommended for Telefonaktiebolaget LM Ericsson (Ericsson) (NASDAQ: ERIC) at its current market price of USD 5.57 as on December 06, 2023, at 07:05 am PST.
Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.
Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.
How to Read the Charts?
The yellow colour line reflects the 21-period simple moving average (SMA) while the blue line indicates the 50- period simple moving average (SMA). SMA helps to identify existing price trends. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.
The orange colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.
The red and green colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps with easier and faster execution of the order.
The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.
Technical Indicators Defined: -
Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
The reference date for all price data, currency, technical indicators, support, and resistance levels is December 06, 2023. The reference data in this report has been partly sourced from REFINITIV.
Abbreviations
CMP: Current Market Price
SMA: Simple Moving Average
RSI: Relative Strength Index
USD: United States dollar
Note: Trading decisions require a thorough analysis by individual. Technical reports in general chart out metrics that may be assessed by individuals before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.