Last month I wrote a hopeful article on Nokia (NYSE:NOK). I thought it was possible the company might be able to restore its dividends. That would be a boon for NOK stock — it would soar if dividends come back by the end of the year.
However, NOK stock is not looking like a winner right now. Under $3 per share, Nokia is down hard from its recent February high near $4.40.
Moreover, Nokia may have trouble making positive free cash flow this quarter. That would mean its cash balance of 1.7 billion euros would fall from FCF losses.
Keep in mind that Nokia’s management said in November that it would restore the dividend once the company’s cash balance reaches 2 billion euros. Management said it would likely take until the end of 2020 for that to happen.
The point is that the impact of the economic downturn will likely lead to much lower FCF or even negative FCF. That will delay Nokia from reaching the required balance. So, the restoration of its dividend payment will take longer than the end of the year.
The Impact of Uncertainty on NOK Stock
Investors don’t like to be disappointed. They know it isn’t likely that NOK stock will pay a dividend. So there is little holding up the stock price.
Moreover, no one really knows how long the economic downturn will last, or how exactly how the coronavirus from China will impact the world.
Markets hate uncertainty. And this uncertainty is seriously pulling down NOK stock now.
These are the two reasons NOK stock has fallen — the prospect of no dividend restoration and the coronavirus-driven negative sentiment. There is likely little that can be done about these for right now.
What Can Help Nokia Stock?
One reason to be optimistic about NOK stock is its new CEO, Pekka Lundmark. He says it is too early to talk about major strategic changes at Nokia. However, he used to work at Nokia for 10 years.
Since then, as CEO of Fortum Oyj (OTCMKTS:FOJCY), he put together Fortum’s 6.2 billion euro acquisition of German utility Uniper. This is important since it shows he has the ability to think outside the box, so to speak.
It also shows that the board of Nokia was upset with the progress the previous CEO was making in gaining 5G market share.
I highly suspect this means that the new CEO might be potentially willing to sell Nokia. The company has not said this. But given the new CEO’s background, a sale is now much more likely.
What is Nokia Worth?
It is hard to say what Nokia is worth, especially now that the impact of the coronavirus is still unclear. I recently wrote an article for Seeking Alpha in which I argued that NOK stock is worth $6.28 per share.
But that was in the middle of February. I said at the beginning of this article that NOK stock has since fallen a good bit. My article was based on the prospect of the dividend coming back. That is not likely to happen now.
So in a takeover situation, the likely value for NOK stock will highly depend on the synergies that Nokia would bring to the acquirer. Nokia has a $16.5 billion market value right now.
If the acquiring company had a similar market value and could bring synergies, Nokia could bring a premium price. If the acquirer was much larger, and it was a “bolt-on” purchase, then NOK stock wouldn’t benefit as much.
In any case, the U.S. government would likely want to see that any acquirer would not benefit Huawei. Look for interesting news with NOK stock in the next coming quarters, as the CEO reviews the company’s best course.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here.