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Stock Strategist

Look Past Ericsson's Rough Near Term

Restructuring and industry headwinds have hurt results, but we still think the stock’s undervalued.

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 Ericsson’s (ERIC) second-quarter results were markedly better than those of the seasonally weak first quarter as the company aggressively worked down its costs and expenses. However, these positives were overshadowed by the negative near-term impact of restructuring activities and industry headwinds.

Ericsson expects its core wireless business segment to experience a high-single-digit revenue decline in 2017, worse than its prior forecast of 2%-6%. This will be compounded by managed services contract revisions that are likely to reduce revenue by as much as SEK 10 billion in 2019. We have reduced our fair value estimate slightly for the no-moat company, but we still see a decent margin of safety for patient investors.

Ilya Kundozerov does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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