6/15/2012 8:02 AM ET
(RTTNews) - Moody's Investors Service has downgraded the long-term senior unsecured ratings of Nokia Oyj (NOK: News ) to Ba1 from Baa3 and its short-term senior unsecured ratings to Not-Prime from Prime-3.
Concurrently, Moody's has assigned a Ba1 corporate family rating and a probability of default rating to the company. The outlook on all ratings remains negative.
"Today's rating action reflects our view that Nokia's far-reaching restructuring plan, which involves drastically downsizing its infrastructure by focusing its direct marketing on fewer markets, streamlining support functions and reducing investments in certain R&D projects in order to realize additional fixed cost savings of up to EUR1.3 billion by the end of 2013, delineates a scale of earnings pressure and cash consumption that is larger than we had previously assumed," said Wolfgang Draack, a Moody's Senior Vice President and lead analyst for Nokia.
Despite today's downgrade, Moody's regards Nokia's commitment to decisive restructuring as positive and necessary to return the group to profitability. A return to profitability also depends on Nokia successfully transitioning its range of smartphones to the new Windows operating system and stabilising its feature phone business.
by RTT Staff Writer
For comments and feedback: contact editorial@rttnews.com
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Consider This Strategy Before You Buy Nokia - Seekingalpha.com
According to Sanford Bernstein, Nokia's (NOK) patent portfolio is worth €0.50 ($0.63) to €1.50 ($1.89) a share, while Navteq, a mapping company, is worth €0.6 ($0.76). On Nokia, Advfn shows that NOK has a Tangible Book Value / Share of $1.74, of which $0.65 is cash. According to a fellow Seeking Alpha writer here, the cash should last for about seven more quarters.
And so, on Nokia, I would consider a covered call options strategy:
A covered call is an options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This is often employed when an investor has a short-term neutral view on the asset and for this reason hold the asset long and simultaneously have a short position via the option to generate income from the option premium. (Investopedia)
The NOK Jan. 2014 $2 Call has a premium of $1.06. NOK is trading for $2.35. The table below from OptionsXpress shows how returns vary by strike:
Click to enlarge
At the $2 strike, the breakeven point is $1.29. If you subtract the cash from TBV/S, you get $1.10/share and assuming the worst estimates from Sanford Bernstein you get a value of $1.40/share. These numbers should serve as a floor for NOK.
If you believe that Microsoft (MSFT) will acquire NOK, or simply that NOK is cheap, this strategy will provide 50+% upside, while significantly reducing your downside.
Source: OptionsXpress
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NOK over the next 72 hours.
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