Nokia is set to raise guidance, causing stocks to rise

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    Telecommunications equipment manufacturer Nokia (NYSE: NOK) said Tuesday that it expects its full year outlook to be raised and the stock up as much as 12% as investors cheered the news.

    Nokia has been added to the group of heavily shorted “meme stocks” retailers on Reddit’s WallStreetBets subreddit who like to target to trigger a short squeeze and / or a gamma squeeze, resulting in increased volatility.

    In terms of fundamentals, Nokia is making progress on its turnaround plan.

    An orientation boost is coming

    The company didn’t provide many details other than that it plans to revise its guidance upwards for 2021 due to the continued strength of the business. Nokia will release full forecast details when it releases its second quarter results on July 29th.

    For context, here is the previous outlook Nokia offered in April for this year.

    MetricGuide for 2021
    Net sales (adjusted for currency fluctuations)€ 20.6 billion to € 21.8 billion ($ 24.3 billion to $ 25.7 billion)
    Comparable operating margin7% to 10%
    Free cash flowpositive
    Comparable ROIC10% to 15%
    Data source: Nokia. ROIC = return on invested capital. Euros converted to US dollars based on current exchange rates.

    “We are making good progress with our three-phase plan, which was set out at our Capital Markets Day in March, to achieve sustainable, profitable growth and technology leadership,” said CEO Pekka Lundmark in a press release. “Our performance in the first half of the year has demonstrated this in good cost control and has also benefited from strength in a number of our end markets.”

    Nokia will still face challenges previously discussed in the second half of the year, Lundmark warned, but the company was encouraged by its performance in the first half of 2021.

    The bigger picture

    Nokia has been working on its turnaround strategy for years to streamline operations and improve profitability. This included a new operating model and company restructuring.

    The phases of the initiative can be summarized as “Reset, Accelerate, Scale”, and Nokia announced further details of the multi-year effort earlier this year.

    After introducing the new operating model as part of the reset, from 2022 Nokia will work to strengthen its competitive position, accelerate revenue growth and increase profit margins. The final step in scaling will come as Nokia develops new use cases and business models for its products.

    Nokia expects the total addressable market (TAM) – which includes cellular networks, network infrastructure and cloud services – to grow at an average annual growth rate (CAGR) of around 1% from 2020 to 2023.

    During this period, the company plans to increase its total cost base by around 600 million currently 90,000 employees by the end of 2023.

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    Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Millennial Money is part of The Motley Fool Network. Millennial Money has a disclosure policy.

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