Morgan Stanley cuts Ericsson stock rating on margin pressure concerns
Morgan Stanley has reduced Ericsson's stock rating to Underweight from Equalweight, lowering its price target to SEK90.00 from SEK95.00. The firm anticipates telecom operators will remain cautious regarding mobile capital expenditure and predicts a flat Radio Access Network market through 2027. Ericsson's North American Network revenues decreased by roughly 5% year-over-year in the second quarter after several years of robust growth.
The company now anticipates margins to decline to 48% to 50%, a 100 basis point decrease from the previous quarter, due to escalating input costs, especially in semiconductors. Morgan Stanley's 2027 EBIT and earnings per share estimates have been reduced by 5% and 6% respectively because of growing concerns about margin pressure.
The firm forecasts gross margins to decrease by around 100 basis points annually through 2028. The shares are currently trading at a P/E ratio of 11.19, while Morgan Stanley forecasts a gradual decline in gross margins over the next three years. Despite Ericsson's recent financial report, which missed earnings and revenue estimates, the company maintained stable margins, cut costs, and achieved cash flow near its target range.
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