A very bullish research note, Merrill expects NOK to reach $10 within one year.  This is a portion of it

 

Nokia

Only just getting started…

 

Raise PO to E9.3; potential long-term upside to >E10

Following Nokia’s strong Networks beat & raise we have reflected higher Nokia

standalone estimates (2015-17E EPS +5 to +10%) and also Alcatel’s sub-consensus 3Q

performance in our proforma estimates. With management executing well (again) in

Networks, we are increasingly confident that Nokia can overdeliver on deal cost savings.

We reiterate our previous analysis that net synergies could potentially reach E1.8bn, or

double current management guidance. Based on our refreshed estimates, we expect a

proforma 2018 EPS power range of E0.56 (flat Networks revenues, 40bps IPR

monetisation, E900m synergies) to E0.69 (E1.8bn deal synergies). On our estimates, the

announced E3bn in 2016&17 equity cash returns hardly make a dent in net cash -

assuming the Samsung arbitration and HERE disposal proceeds materialise as we

expect, we see end-2016 net cash of ~E10bn or E1.8/share. We have nudged up our

12mth PO slightly to E9.3. However, our scenario analysis (over a 18-24 month view of

potential deal synergies) suggests 58-88% upside potential for the stock: Should Nokia

execute on deal synergies, the market may pay 15x ex cash P/E on 2018 EPS in 2017, in

which case it would imply valuation per share of E10.4 (=58% upside, assuming

E900m/base case synergies) to up to E12.4 (=88% upside, assuming E1.8bn in

synergies). We reiterate Buy.

 

Catalysts ahead: Samsung IPR; cash return & synergy raise

With 3Q out of the way and decent visibility on the seasonally big 4Q, earnings risk in a

volatile industry seems relatively low for now. We think this should focus investors on

upcoming catalysts for the stock in the next 3-6 months: 1) The Samsung IPR arbitration

decision should materialize later this year or early next, per company guidance. We

continue to believe that consensus expectations of a c.35bps royalty rate seem

conservative. 2) Once the ALU deal closes in 1Q16, management could raise its deal

synergy target from its current E900m target. 3) There is, in our view, ample room to

further upsize cash returns due to expected ~E10bn or E1.8 / share in net cash.