Analyst Note| Mark Cash |
No-moat Ericsson exceeded FactSet consensus estimates, with 5% year-over-year revenue growth and EPS of SEK 2.26. 5G buildouts and broad-based market share gains with telecom operators led to the strong quarter for the networks business and drove overall results. Gross margins continue to tick up due to Ericsson’s previous 5G development efforts paying off, coming in at 40.6% for the quarter, up from 36.8% a year ago. Operating margin of 15.8% in the quarter was up from 9.2% the year prior, aided by the gross margin increase, lower travel, and fewer trials in the quarter. Ericsson is increasing its dividend to SEK 2.00 from SEK 1.50. We are raising our fair value estimate to SEK 105 from SEK 101 based on expecting Ericsson to outpace the market while keeping its recently improved operating profile. Shares increased about 10% on the positive report, and we view the name as fairly valued.