Is Ericsson (ERIC) a Buy Ahead of Earnings?

Today, we’ll be taking a look at a business with a long and storied history. Ericsson (NASDAQ: ERIC) was once at the forefront of telecommunications.

A lot of time has passed since the company’s halcyon days — now, after a long period of mixed performance, it seems as if the company is ready to turn a new page and reclaim lost heights.

The $28 billion market cap giant is currently one of the top-rated stocks according to our quant rating system, Zen Ratings. An analysis of 115 proprietary factors has placed ERIC in the top 1% of the equities that we track.

This gives it a Zen Rating of A. Why is this important? Stocks with a Zen Rating of A (those that rank in the top 5%) have provided an average annual return of 32.52% since the turn of the century.

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Ericsson is in rarefied air — the stock actually ranks 39th overall out of a total of roughly 4,600. It’s also the 4th highest rated stock in the Communication Equipment industry, which has an Industry Rating of A.

That’s all well and good — but what makes ERIC great? Well, each Zen Rating is a composite score made up of 7 Component Grade ratings, which focus on a stock’s specific strengths and weaknesses.

For example, our Safety Component Grade rating is a measure of earnings predictability, revenue inflow consistency, and stock price stability. In this category, Ericsson ranks in the top 13% of stocks. As it happens, it also ranks in the top 13% when it comes to Sentiment.

Our Artificial Intelligence Component Grade rating uses a neural network trained on two decades of market data to suss out likely outperformers. Here, ERI ranks in the 89th percentile.

However, the true star of the show is the stock’s valuation relative to its growth prospects. Looking at Growth, it ranks in the top 14% — while also ranking in the top 5% with regard to Value.

So — strong balance sheet, dominant position in its industry, great valuation and growth prospects — all accounted for.

That leaves one crucial element missing — a catalyst. Thankfully, the stock isn’t lacking in that department either. 

The company recently signed a $1.3 billion deal with Vodafone UK to supply 5G equipment. The 8-year deal will see Ericsson products power most of Vodafone’s next-gen mobile network in the country — demonstrating that a competitive edge has been reclaimed.

To further sweeten the pot, the stock could very well see an uptick in momentum soon. Ericsson shares have rallied by 6.63% over the past 30 days — the company has notched two consecutive earnings beats, and if the next quarterly report, due October 14, ends up being a success, the rally might see a bout of second wind.

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