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Ericsson Set for Robust Earnings Growth in 2018 and Beyond

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Oct. 15 2018, Published 11:26 a.m. ET

Revenue expected to rise in 2020

In the previous part of this series, we saw that analysts expect Ericsson’s (ERIC) revenue to decline 5% in the third quarter of 2018. They also expect its revenue to decline 1.4% YoY (year-over-year) in the fourth quarter, indicating an overall decline of 2.2% for 2018.

Ericsson’s sales might decline marginally by 0.6% to $22.9 billion in 2019 before rising 1.3% in 2020.

However, while Ericsson’s revenue estimates are flat, its EPS is expected to grow at a robust pace. Analysts expect its EPS to rise 157% in the third quarter to $0.04 and 120% in the fourth quarter to $0.11.

While Ericsson’s EPS could fall 6% in 2018 to $0.16, analysts expect it to rise 125% in 2019 and at a CAGR (compound annual growth rate) of 229% over the next five years.

EPS for peers Cisco (CSCO), Nokia (NOK), and Juniper Networks (JNPR) are expected to rise 8.9%, 17.2%, and 13.6%, respectively, over the next five years.

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Target of 12% for operating margin

So what will drive Ericsson’s massive rise in EPS? The company said it’s targeting an operating margin of 12% in the long term. By the end of 2020, it plans to expand its operating margin to 10%. It expects continued improvement and upsides from its emerging businesses to drive its operating margin higher after 2020.

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