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Comprehensive evaluation of Ericsson (NASDAQ: ERIC)

K

khaja

30th May, 2025
0 min read
Comprehensive evaluation of Ericsson (NASDAQ: ERIC)

Comprehensive evaluation of Ericsson (NASDAQ: ERIC). using principles from 8 legendary investors—covering moat, value, growth, risks, and management quality.

1. 💩 Understandable Business – (Buffett, Lynch, Graham)

Ericsson is a global leader in telecommunications infrastructure, providing equipment, software, and services for telecom networks. Its core operations include mobile networks, cloud software, services, and enterprise wireless solutions, with a strong focus on 5G technology. The company offers a straightforward business model centered around selling hardware and software to telecom operators and supporting them with long-term service agreements.

Essential or Discretionary? Essential. Telecom networks are critical infrastructure in modern economies, and demand for mobile data is only growing.

Circle of Competence? Clearly explainable and within the realm of technology infrastructure investing.

Conclusion: ✅ Pass

2. 🛡️ Durable Competitive Advantage – (Buffett, Munger, Lynch)

Ericsson possesses multiple moats:

  • Brand: Recognized globally in telecom.
  • Switching Costs: High due to network compatibility and integration.
  • Economies of Scale: Large-scale production and R&D.
  • Regulatory Edge: Deep experience complying with international telecom standards.

Key Metrics:

  • Gross Margin: 48.5%
  • EBITA Margin: 12.6%
  • Free Cash Flow: SEK 2.7 billion in Q1
  • Market Cap: $28.95B
  • Stable market share in 5G infrastructure globally

Conclusion: ✅ Pass

3. 🧾 Quantitative Value & Financial Health – (Greenblatt, Graham, Klarman)

  • ROCE: Inferred to be improving based on EBITA growth.
  • P/E Ratio: 170.4 (reflects low trailing EPS of $0.05)
  • Debt: Stable net cash position; no signs of over-leverage.
  • Interest Coverage: Sufficient given EBITA and cash flow generation.
  • Book vs Market: Market Cap and financials imply fair-to-slightly-premium valuation.

Conclusion: ✅ Pass (High P/E is a concern, but cash flows and margins offset risk)

4. 📊 Growth & GARP – (Lynch, Buffett)

  • EPS Growth: Net income rose from SEK 2.6B to SEK 4.1B YoY.
  • Enterprise Wireless: +20% YoY
  • Industry Tailwinds: Global 5G adoption, demand for programmable networks, API monetization.
  • PEG Ratio: High, reflecting valuation premium.

Conclusion: ✅ Pass

5. 🌍 Macro & Cyclical Positioning – (Dalio, Marks)

Ericsson is well positioned to withstand macro challenges due to:

  • Diversified supply chain
  • Strong U.S. and European presence
  • Essential product demand
  • Strategic customer partnerships (e.g., Telstra, JLR, Aduna API JV)

Despite global tariff uncertainty and macro pressures, Ericsson has shown resilience in execution and regional diversification.

Conclusion: ✅ Pass

6. 📉 Risk Aversion & Margin of Safety – (Klarman, Graham, Marks)

  • Valuation Cushion: Currently trading at a modest discount to historical averages
  • Capital Preservation: Consistent positive cash flow, prudent cost controls
  • Operational Risks: Managed via global footprint and strategic partnerships

Conclusion: ✅ Pass

7. 🧠 Management Quality & Capital Allocation – (Buffett, Munger, Lynch)

  • CEO Borje Ekholm and CFO Lars Sandstrom have prioritized execution, cost control, and innovation.
  • Shareholder Communication: Transparent quarterly calls and reports
  • Capital Allocation: Cost-cutting in low-return segments, investment in growth areas like Enterprise Wireless and APIs

Conclusion: ✅ Pass

8. ⚖️ Final Valuation & Investment Decision

  • Current Price: $8.52
  • EPS: $0.05 (trailing)
  • Intrinsic Value: Difficult to estimate precisely due to earnings volatility, but operational execution implies upside.
  • Long-Term Outlook: Strong position in 5G and enterprise connectivity markets supports bullish case.

Conclusion: ✅ Pass

📈 Summary Table: Investing Legends Scorecard

Pillar Legend(s) Key Criteria Pass/Fail
Understandable Business Buffett, Lynch, Graham Simple, explainable, predictable ✅ Pass
Competitive Advantage (Moat) Buffett, Munger, Lynch Moats, high ROE, brand/scale edge ✅ Pass
Quantitative Value Greenblatt, Graham, Klarman ROCE, EV/EBIT, P/B, margin of safety ✅ Pass
Growth at Reasonable Price Lynch, Buffett PEG < 1.5, earnings momentum, reinvestment opportunities ✅ Pass
Macro & Cyclical Awareness Dalio, Marks Debt cycles, recession-resilience, risk parity ✅ Pass
Risk & Downside Protection Klarman, Graham, Marks Deep value, low downside, margin of safety ✅ Pass
Quality of Management Buffett, Munger, Lynch Capital discipline, transparency, track record ✅ Pass
Valuation & Final Judgement All Intrinsic value vs. price, 5–10 year return profile ✅ Pass

💾 Final Investor Questions:

  1. What business am I actually buying into? A top-tier global telecom infrastructure provider.

  2. How does it make money, and can it sustain that advantage long-term? Equipment and service sales to telecom operators; yes, due to high barriers and essential demand.

  3. What economic/competitive moat does it have? Brand, switching costs, and global scale.

  4. Is it undervalued on a fundamental and relative basis? Modestly undervalued given long-term potential.

  5. Can it withstand macroeconomic cycles or downturns? Yes. Strong execution and essential services provide stability.

  6. Is the risk/reward profile asymmetric? Yes. Operational leverage and strategic innovation offer long-term upside.

  7. Is this company run by smart, rational stewards of capital? Yes. Focused strategy, transparency, and disciplined execution.

📈 Final Verdict: Ericsson presents a compelling long-term investment opportunity. Strategic leadership in 5G, resilient earnings structure, and visionary management make it a worthy candidate for value and GARP investors alike. Continue accumulation on dips and maintain on watchlist for long-term holding.