Critical Survey: Nokia (NYSE:NOK) and Ericsson (NASDAQ:ERIC)

Ericsson (NASDAQ:ERIC) and Nokia (NYSE:NOK) are both large-cap technology companies, but which is the better stock? We will contrast the two companies based on the strength of their valuation, analyst recommendations, risk, earnings, institutional ownership, profitability and dividends.

Profitability

This table compares Ericsson and Nokia’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Ericsson	8.31%	20.89%	7.73%
Nokia	3.80%	10.48%	5.94%

Analyst Ratings

This is a breakdown of current recommendations for Ericsson and Nokia, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ericsson	4	5	1	0	1.70
Nokia	2	5	16	0	2.61

Ericsson presently has a consensus target price of $9.60, indicating a potential downside of 6.43%. Nokia has a consensus target price of $13.41, indicating a potential upside of 74.81%. Given Nokia’s stronger consensus rating and higher probable upside, analysts clearly believe Nokia is more favorable than Ericsson.

Dividends

Ericsson pays an annual dividend of $0.20 per share and has a dividend yield of 1.9%. Nokia pays an annual dividend of $0.09 per share and has a dividend yield of 1.2%. Ericsson pays out 32.8% of its earnings in the form of a dividend. Nokia pays out 56.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Ericsson is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility and Risk

Ericsson has a beta of 0.97, meaning that its share price is 3% less volatile than the S&P 500. Comparatively, Nokia has a beta of 1.24, meaning that its share price is 24% more volatile than the S&P 500.

Insider & Institutional Ownership

8.0% of Ericsson shares are held by institutional investors. Comparatively, 5.3% of Nokia shares are held by institutional investors. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Valuation & Earnings

This table compares Ericsson and Nokia”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ericsson	$24.19 billion	1.43	$2.91 billion	$0.61	16.82
Nokia	$22.50 billion	1.96	$736.54 million	$0.16	47.94

Ericsson has higher revenue and earnings than Nokia. Ericsson is trading at a lower price-to-earnings ratio than Nokia, indicating that it is currently the more affordable of the two stocks.

Summary

Ericsson beats Nokia on 9 of the 15 factors compared between the two stocks.

About Ericsson

Telefonaktiebolaget LM Ericsson (publ), together with its subsidiaries, provides mobile connectivity solutions for telcom operators and enterprise customers in various sectors in North America, Europe, Latin America, the Middle East, Africa, North East Asia, South East Asia, Oceania, and India. It operates in four segments: Networks; Cloud Software and Services; Enterprise; and Other. The Networks segment offers radio access network (RAN) solutions for various network spectrum bands, including purpose-built and open RAN-prepared hardware and software. This segment also provides cloud RAN; transport solutions; passive and active antennas; and a range of service portfolios covering network deployment and support. The Cloud Software and Services segment offers core networks, business and operational support systems, network design and optimization, and managed network services. The Enterprise segment offers a global communications platform, including cloud-based unified communications as a service, contact center as a service, and communications platform as a service; enterprise wireless solutions comprising private wireless networks and wireless wan pre-packaged solutions; and technologies and new business solutions, such as mobile financial services, security solutions, and advertising services. The Other segment includes Redbee media that prepares and distributes live and video services for broadcasters, sports leagues, and communications service providers. It offers its services through wholesalers and distributors. The company was formerly known as Allmanna Telefon AB LM Ericsson and changed its name to Telefonaktiebolaget LM Ericsson (publ) in January 1926. Telefonaktiebolaget LM Ericsson (publ) was founded in 1876 and is headquartered in Stockholm, Sweden.

About Nokia

Nokia Oyj provides mobile, fixed, and cloud network solutions worldwide. The company operates through four segments: Network Infrastructure, Mobile Networks, Cloud and Network Services, and Nokia Technologies. The company provides fixed networking solutions, such as fiber and copper-based access infrastructure, in-home Wi-Fi solutions, and cloud and virtualization services; IP networking solutions, including IP access, aggregation, and edge and core routing for residential, mobile, enterprise and cloud applications; optical networks solutions that provides optical transport networks for metro, regional, and long-haul applications, and subsea applications; and submarine networks for undersea cable transmission. It serves its products and services to communications service providers, webscales and hyperscalers, digital industries, and government. The company also offers mobile technology products and services for radio access networks and microwave radio links for transport networks, network management solutions, as well as network planning, optimization, network deployment, and technical support services. In addition, it offers cloud and network services, including core network solutions, such as voice and packet core; business applications, such as security, automation, and monetization; cloud and cognitive services; and enterprise solutions, including private wireless and industrial automation. Further, the company licenses intellectual property, including patents, technologies, and the Nokia brand. Nokia Oyj was founded in 1865 and is headquartered in Espoo, Finland.