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Investing.com -- Morgan Stanley raised its price target on Ericsson to 90 Swedish kronor from 80, a move driven by stronger-than-expected cost efficiencies and higher profitability forecasts.
The Wall Street bank maintained an Equal Weight rating on the Swedish telecom equipment maker, seeing the company’s strategic pivot toward disciplined cost control and shareholder returns as a key driver of value.
Following the company’s third-quarter results and the sale of its iconectiv unit, Morgan Stanley analysts said Ericsson’s “cost-action [is] playing out better than anticipated,” with gross margins in mobile networks expected to reach record levels above 50% in 2025 despite a 6–7% revenue decline.
Operational improvements, including a 6% workforce reduction and better management of geographical mix, are helping sustain margins at levels previously unseen in the industry, a team led by Terence Tsui said.
Morgan Stanley lifted its EBIT and EBITA forecasts by 8–14% after factoring in stronger cost efficiencies, leading to a 13% upward revision in its price target.
The bank now forecasts that Ericsson’s operating margins will remain steady in the 12–15% range through 2026, reflecting the company’s improved expense management and operational leverage.
It also expects a significant uptick in shareholder returns, estimating 30 billion kronor — around 10% of Ericsson’s market capitalization — could be distributed in 2026. The analysts project an ordinary dividend of 3 kronor per share, a special dividend of 3 kronor, and share buybacks totaling 10 billion kronor.
Ericsson’s net cash stood at 52 billion kronor in the third quarter, and even after the planned distributions, the firm sees a “healthy cash position of SEK 33 billion by year-end 2026.”
The analysts described Ericsson’s equity story as "pivoting from prioritising top-line growth to being disciplined on costs and considering non-core disposals and cash returns.”
While the stock’s rally may tempt some investors to take profits, the potential for “sizeable special returns” argues for patience, they cautioned.
Morgan Stanley’s new forecasts imply that Ericsson’s 2026 enterprise value-to-EBITDA multiple of around 9x is now in line with Nordic telco peers. “Tech" company more closely resembling a "Telco", with focus on free cash flow and potential for special shareholder returns,” the analysts wrote.