The following excerpts explain why Zacks senior telecom industry analyst Robert J. Perri, CFA remains neutral on LM Ericsson Telephone Company (ERIC), the telecom equipment manufacturer:
'We expect Ericsson to report an in-line third quarter of 2007, against a strong currency headwind. The company continues to see a slowdown in growth in North and Latin America, despite strength in the emerging markets. Additionally, the strength in the Asia/Pacific region has caused its working capital needs to swell, which is putting a damper on its cash flow.
'We also remain concerned about the weakness in earnings of Sony Ericsson after a weak 3Q. We are slightly raising our estimates for ERIC due to the recent acquisitions although integration costs should rise. Ericsson's share price is currently the highest valued of all the large communications equipment manufacturers in terms of Enterprise Value to Sales, reflecting its return to profitability and the favorable outlook for network infrastructure spending, particularly in emerging markets.
'The company expects moderate (high-single digit) year-over-year growth in revenues (in US dollars) for the global professional services market in 2007, and we believe it will continue to gain market share against most other industry players. Based on the recent quarterly results and currency movements, we have slightly raised our US$ revenue outlook for 2007 and 2008, although we have slightly lowered our outlook in Swedish Kronor, due to the recent weakness of the dollar and our expectation is that it will remain weak for the remainder of the year. We continue to rate ERIC a Hold with a target price of $43.25.'
Read the full analyst report on ERIC.
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