Among the key news on European stocks, Telefonaktiebolaget LM Ericsson (DE:ERCA) announced yesterday that it will take a hit of $1.1 billion (SEK11.4 billion) due to a non-cash impairment in the second quarter of 2024. The charges relate to the impairment of tangible assets associated with its Vonage acquisition, marking its second write-down from this deal. The impairment also reflects lower-than-expected market growth in the Vonage portfolio.
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The company will report its second quarter results for 2024 on July 12.
Ericsson is a multinational group that offers a wide range of services to communications service providers. In July 2022, the company acquired Vonage, a cloud communications specialist.
Ericsson’s Impairment Troubles
According to Niklas Heuveldop, CEO of Vonage, the deteriorating market environment and the strategic decision to refocus investments on prioritized areas have led to this impairment charge.
Before this, Ericsson booked a $3 billion impairment charge in 2023, mainly due to a slowdown in Vonage’s core markets, share price volatility among Vonage’s peers due to weakness in the broader sector, and higher interest rates.
With this acquisition, Ericsson aimed to leverage Vonage’s communication platform to target enterprise customers and diversify its mobile network business. Ericsson projected Vonage to enhance earnings per share and free cash flow from 2024 onwards. However, so far the company has written down over $4 billion against the acquisition price of $6.2 billion.
Is Ericsson a Good Stock to Buy?
According to TipRanks, ERCA stock has received a Moderate Sell consensus rating based on two Sell and two Hold recommendations. The Ericsson share price target is €4.27, which is 26.3% below the current trading level.
