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Investing.com -- Goldman Sachs analysts cut Nokia (HE:NOKIA) stock rating to Sell from Neutral in a move largely based on valuation concerns and a challenging outlook for its key business segments.
The company's shares fell over 2% ahead of Thursday market open.
The downgrade follows a strong performance by Nokia's stock in 2024, which saw a 40% increase in euro terms, significantly outperforming the broader European tech sector, which declined 7%.
Goldman analysts believe the rally was “unwarranted, as the company saw continued downwards consensus earnings revisions through the period, as well as push-outs in Networks Infrastructure.”
The bank pointed to a "mixed fundamental backdrop" as a key reason for the downgrade. It noted that Nokia's Networks Infrastructure segment has shown slower-than-expected conversion of orders to revenue, raising concerns about execution risks.
While inventory levels have normalized in the segment, the report flagged “uncertainty around the timing of order conversion, with scope for more push-outs, and lack of clarity on government spending intentions in the US.”
Goldman Sachs also believes there is limited visibility for a rebound in wireless demand, and highlighted risks related to further wireless share loss.
Among those risks is the loss of market share in North America following a key contract loss at AT&T (NYSE:T).
“While Nokia stated that the loss of share at AT&T was not driven by product quality, we believe investors will look for more colour on the product quality gap between Nokia and Ericsson (BS:ERICAs), and any further newsflow suggesting contract losses could be taken negatively by investors,” the bank explained.
The downgrade also emphasized valuation concerns. Nokia’s shares currently trade at a forward EV/EBITDA multiple of approximately 7x, reflecting a discount of only 16% to the European tech sector, a significant compression from its historical median discount of around 44%.
Goldman described this narrowing of the discount as unwarranted, given Nokia’s weak growth profile and ongoing challenges in its primary markets. The firm’s revenue estimates for Nokia in 2025 and 2026 are 6-8% below consensus, driven by expectations of a slower recovery trajectory.
Despite some positive developments, such as solid growth in fixed-line orders, Goldman expressed caution over the sustainability of these trends.
“While fixed-line orders have been solid recently, we remain cautious around the risk of continued push-outs in 2025.”
The 12-month price target for Nokia remains unchanged at €3.5 and $3.60 for ADRs, implying a potential downside of 15-20%.