On Apr 5, 2013, we downgraded wireless infrastructure
LM Ericsson Telephone Company
) to Neutral from Outperform based on the company's modest fourth
Why the Downgrade?
Estimates for Ericsson have been declining ever since the
company reported its fourth quarter results on Jan 31, 2013.
Ericsson's fourth quarter EPS of 17 cents was in line with the
Zacks Consensus Estimate.
Following the release of the fourth quarter results, the Zacks
Consensus Estimate for the current quarter and the next quarter
has gone down 15.4% and 6.3%, respectively. However, for the year
2012, the Zacks Consensus Estimate is up 5.4% but for 2013, it
remains unchanged. With the Zacks Consensus Estimates for both
the current and next quarter going down, the company now has a
Zacks #3 Rank (Hold).
Cause for Concern
The company continues to witness declining sales in its CDMA
business. Further, Ericsson expects the declining trend to
continue through 2013. Moreover, the impact of the ST-Ericsson
split also led to the decline in the operating income. In
addition, the company's shift in its business mix from coverage
to capacity is also expected to have an impact on the revenues at
least till the first half of the year 2013.
However, the company's increased focus on IPTV and its recent
contract wins are expected to drive the company's growth in
Med-Tech Stocks That Warrant a Look
While we prefer to wait and watch Ericsson as we see signs of
improvement in the company's performance, other wireless
equipment stocks worth a look are
Ubiquiti Networks Inc
Sonus Networks, Inc.
). All are Zacks #2 Rank (Buy) stocks.
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UBIQUITI NETWRK (UBNT): Free Stock Analysis
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