Ericsson ERIC recently announced that it has inked a credit facility agreement of €250 million with European Investment Bank, to finance its R&D activities in the 5G network field. This deal marks the second big step in the company’s intensive 5G endeavors in the past week, following the unveiling of new headquarters in Hungary, dedicated to the same purpose.
A Win-Win Deal
According to the agreement, the debt maturity profile will extend five years post disbursement. Apart from benefitting the company, this deal will also substantially contribute to the bank’s efforts to bridge the current investment gap faced by the European Union, ensuring that many highly-skilled jobs will remain within the region. The loan will be granted through European Fund for Strategic Investments, a combined venture between the European Investment Bank and European Commission. The fund will be particularly employed in the development of hardware and software for the Radio Access Network (RAN). The R&D activities will mostly be carried out in Sweden. Ireland, Spain and Poland will also host these activities.
5G: Future of Telecom
The commencement of upcoming 5G services is expected to change the mobile networking market with high speed broadband services, ultra-low latency and a large number of supported devices. With telecom companies working industriously in this field, Ericsson stands out as one of the strongest competitors. It expects about 1 billion 5G subscriptions by the end of 2023. With more than 23,600 dedicated staff working in the R&D field, the company has been focused on the future of telecom and invested a whopping SEK 37.9 billion or approximately €3.7 billion, in R&D last year.
Where Does Ericsson Stand?
Even though Ericsson expects the RAN market to decline 2% this year, it anticipates a compounded annual growth rate of 2% over the next four years. With consistent R&D spending despite top-line declines and various cost-cutting measures, the company is likely to benefit from the expected investment cycle in the 5G market and return to growth.
Price Performance
In the past three months, the stock has outperformed the industry’s 2.9% decline with a 9.9% return. This is possibly due to the various cost-cutting and sales-improving measures taken by the company.
Zacks Rank and Stocks to Consider
Ericsson currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry space are BlackBerry Limited BB and Motorola Solutions, Inc. MSI, each sporting a Zacks Rank #1 (Strong Buy), and Ubiquiti Networks, Inc. UBNT carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BlackBerry has an expected long-term earnings growth rate of 18.6%.
Motorola has an expected long-term earnings growth rate of 8%.
Ubiquiti has an expected long-term earnings growth rate of 18.6%.
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