Ericsson Shares Fall After Credit Suisse Downgrades Rating, Slashes Price Target

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Ericsson Shares Fall After Credit Suisse Downgrades Rating, Slashes Price Target
Credit: © Reuters.

By Scott Kanowsky -- Shares in Ericsson (ST: ERICb ) fell by more than 4% on Thursday after Credit Suisse (SIX: CSGN ) lowered its rating for the Swedish telecommunications equipment manufacturer and predicted "lackluster" earnings growth until 2024.

In a note, the bank downgraded Ericsson to "underperform" from "outperform" and cut its price target to SEK 69 a share from SEK 113. Analysts said they expect profits at the firm will be particularly impacted over the next two years by the need to pour funds into developing its global 5G wireless network capabilities.

Ericsson previously flagged in July that the current rollout of its 5G services across the world will likely go on for longer than any previous comparable investment cycle.

The 5G, or "fifth-generation," networks have become key for Ericsson and rivals like Finland's Nokia Oyj (HE: NOKIA ) and China's Huawei. The technology, widely known for offering faster speeds than its 4G predecessor, is considered a major element in powering machines with futuristic applications like drones and autonomous vehicles.

Ericsson has estimated that global 5G mobile subscriptions will climb above 1B this year, driven by an uptick in adoption in the U.S. and China, and will hit as many as 4.4B by 2027. 4G usage is seen peaking in 2022, Ericsson said, and then falling as more subscribers switch to 5G.

The Credit Suisse analysts added that they anticipate Ericsson will see demand slow as the 5G capital expenditures mount and macro-economic headwinds increase, especially from soaring consumer prices. Organic revenue is forecast to expand by 5% this year, but remain roughly flat until the end of the 2024 fiscal year.

The analysts said that there is further uncertainty around the outlook for Ericsson due to the potential size of additional fines levied by U.S. authorities, who are investigating the firm over allegations of bribery and corruption.

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