Ericsson: Free Cash Flow Over Headlines

2026-02-27 05:14:38 ET

Investment Thesis

This article covers a company that is, in my opinion, trading at a cheap valuation all across the board. single digit P/E to low double digit P/E in a forward perspective, as well as around average P/B seen over an extended period of years. However, we're observing a very volatile business in terms of financial performance. A business that from a profit-loss and balance sheet perspective is juggling with big numbers and occasional need for impairment losses, meaning that financial metrics observed over a handful of years can jump around a bit, without telling much about the underlying business.Therefore, I prefer to observe it from a cash flow perspective, where I would argue the company is trading at a very attractive level. However, we have to cater for the business volatility element for this stock, and therefore, I'm seeing upside, but limited upside, especially as free cash flows are currently performing at the upper range of managements own guidance, indicating downside risk when assessing the performance to come over the coming couple of years.The stock is currently trading with a very attractive cash flow yield allowing management to maintain the existing 2.6% yield as well as continuing existing share buyback allocations, estimated at reducing float by roughly 4% over the coming year, impacting EPS positively. In other words, there is a very strong foundation for delivering performance on par with the market or even better - but it hinges on the stock price, and that has been appreciating fairly well over the past year, suggesting limited upside despite the attractive valuation and strong foundation of cash distributions to shareholders. ...

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