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On Jul 5, Zacks Investment Research upgraded Ericsson (ERIC - Analyst Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Strong demand for upgradation to 4G/LTE technologies by leading telecom companies across the world, higher mobile broadband traffic owing to the increased adoption of Smartphones, focus on strengthening its potential through improved operational efficiencies and series of strategic acquisitions are the rank drivers for this stock. The long-term fundamentals for the industry to improve remain very encouraging.

The demand for LTE networks is growing each day as this technology enables easy and convenient communication by providing high-speed data for mobile phones and data terminals. Currently, Ericsson has established about 150 LTE networks worldwide and is receiving contracts from leading telecom operators such as Swisscom, Mobile Telesystems, Reliance Communications and Bharati Airtel to name a few. In addition,   the company had an earnings surprise of 50.0% in the latest reported quarter.

On Apr 24, 2013, Ericsson reported a non–IFRS net income (excluding amortizations, write-downs of acquired intangible assets and restructuring costs) of 15 cents or SEK 0.99 per share in the first quarter of 2013, beating the Zacks Consensus Estimate of 10 cents.

Revenues in the quarter were SEK 52 billion ($8.08 billion), up 7% year over year. However, it decreased 19% sequentially for comparable units and adjusted for foreign exchange impacts. The Zacks Consensus Estimate for revenues was $7.8 billion for the quarter. Consolidated revenues during the quarter were primarily driven by higher revenues across Networks and rollout services, especially from high value project activities centered in Europe and North America. Geographically, North American segment reported a 23% growth, while North East Asia experienced a tough quarter with reduced sales in South Korea and adverse foreign exchange effects in Japan.

On the heels of the strong first quarter results, earnings estimates have been trending higher in the past 90 days. The Zacks Consensus Estimate for fiscal 2013 climbed 2.7% to 77 cents per share. This represents year-over-year growth of 37.2%.

The Zacks Consensus Estimate for fiscal 2014 increased 6.0% to 88 cents per share over the same time frame, reflecting a year-over-year increase of 14.1%.

Other Stocks to Consider

Apart from Ericsson, other stocks in the communications equipment and networking solutions sector that are currently performing well include Ubiquitous Networks Inc. (UBNT - Analyst Report), having a Zacks Rank #1 (Strong Buy). Mitel Networks Corporation (MITL - Snapshot Report) and Motorola Solutions Inc. (MSI - Analyst Report) are also worth considering and carry a Zacks Rank #2 (Buy). 

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