Ericsson faces a 2027 margin squeeze as chip inflation hits old contracts. Net cash worth $1.86 a share limits downside, so I see $10.00 in twelve months, a hold.
Key points
- SEK 59.5 billion of Q3 2026 sales, up 7% organically on Japan and Middle East timing plus buying before price rises.
- 50.3% Networks gross margin in Q3 2026, meaning sales minus production cost, helped by SEK 0.5 billion of retroactive patent fees.
- SEK 60.7 billion of net cash on September 30 2026, meaning cash after debt, worth $1.86 a share at SEK 10 per dollar.
The call
The price needs profit to hold near this year levels. At $10.71 the business value is 8.5 times my profit estimate. That is for 2027 and leaves little room for cost pressure.
Shares round tripped after May peak in dollarsSource: market prices to Oct 15 2026, target own estimate.
I still see profit slipping as temporary help fades. Patent catch up of SEK 0.5 billion in Q3 2026 will not repeat and early buying pulls sales forward. My 2027 margin is 13.4% on flat sales. SEK 60.7 billion of net cash limits the downside.
Valuation
| Driver | Figure |
|---|
| 2027 sales on flat radio market | SEK 233 billion |
| Adjusted operating profit at 13.4% | SEK 31.2 billion |
| Business value at 8.5 times | SEK 265.4 billion |
| Plus net cash, September 2026 | SEK 60.7 billion |
| Equity divided by 3.26 billion shares at SEK 10 per dollar | $10.00 |
Eight and a half times fits a flat growing supplier facing cost pressure. Cash is added at face value because earnings multiples undervalue it. Downside to $10.00 is 6.6%, inside hold range.
Risks
- Price rises land faster than costs, which I would see in Networks gross margin above 50% in early 2027.
- Pull forward leaves an order hole, which I would see in organic Networks sales down versus Q3 2026 pace.
- Legal or currency hits cut ADS value, which I would see in quarterly legal notes and a stronger dollar.
What would change my mind
Two quarters with Networks gross margin above 50% on growing organic sales in 2027 would lift my margin and target.