Shares of Ericsson (NASDAQ:ERIC) are down another 5%-6% this morning after Goldman Sachs removed them from their Conviction Buy List. This comes after the stock got hit 12% yesterday on cautious guidance comments from the co's management saying Q4 results will likely come around the low end of current guidance.
- Banc of America is among the few firms out with defensive comments saying that despite another disappointing data point, they believe ERIC is attractively valued at these levels. With a very strong Services business and a dominant share in wireless infrastructure, they see scope for improvement. Firm also expects better cash conversion over the next several quarters, which could restore management credibility.
Continued slowdown in US, Telefonica's acquisition of TIM, and possible network sharing agreements in the UK were all cited as reasons for revenues being light in Q4. While none are new items and the Q4 should be weak for the industry, the firm expects some normalization in 1H08.
Notablecalls: I think ERIC may be a bounce candidate around the $24 level as the weak guidance has already been baked in the valuation here. Note that RBC Capital was out on ERIC just couple of days ago taking their Q4 revenue ests to low end of management guidance range noting Ericsson is seeding the opportunities for future growth in new markets which may have some negative near term margin impact. According to RBC, it may take a few more quarters for Ericsson's financial model to reach steady state.
So no real surprise here. With the stock knocked down by GSCO downgrade this morning, I think there's a fair chance the stock may stage a bounce here.