uploads/2016/06/6-19.png

Why Nokia and Ericsson Stocks Fell on Brexit News

By

Updated

Europe accounts for 23% of network revenues for Nokia

On Friday, Nokia (NOK) fell 8.6% while Ericsson (ERIC) fell 7.3% on news of the United Kingdom leaving the European Union (FEP)(EFA).

As the chart below shows, Nokia derived 23% of its Network revenues from Europe in fiscal 1Q16. This is a significant amount, so the stock fell almost 9% on Friday, driven by investor concerns.

Leading technology firms Microsoft (MSFT), EMC (EMC), Cisco (CSCO), and Hewlett-Packard had supported the Remain campaign to avoid the Brexit.

Article continues below advertisement

According to the CEO of TechUK, a firm that represents over 900 tech companies in the United Kingdom, “This is not the outcome that the majority of TechUK members were hoping for. It opens up many uncertainties about the future. However, the UK tech sector will play its part in helping the UK to prepare, adapt and thrive in a future outside the EU.”

The pound sterling is trading at a 31-year low compared to the US dollar (UUP). Tech companies will need to realign their earnings forecasts, driven by the fall of the pound sterling. The Brexit may also force companies to lower their IT spending due to macroeconomic uncertainties.

Nokia and Ericsson analyst recommendations

Of the 20 analysts covering Nokia, ten have “buy” recommendations, three recommend “sell” recommendations, and seven have “hold” recommendations. Analysts’ stock price target for the company is $7, with a median target estimate of $6.8. Nokia is trading at a discount of 19.3% to its median target.

Of the 14 analysts covering Ericsson, two have “buy” recommendations, two recommend “sell,” and ten have “hold” recommendations. Analysts’ stock price target for the company is $9 with a median target estimate of $8.43. Ericsson is trading at a discount of 4.9% to its median target.

Advertisement

More From Market Realist