ERIC

We rate ERICSSON LM TELEPHONE CO (ERIC) as a Hold with a composite score of 62.7/100 at a current price of $11.03. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in stability (80th percentile) and momentum (67th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a No Moat rating (39/100), Low uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

ERICSSON LM TELEPHONE CO holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 62.7/100 places it at rank #444 in our full 7,333-stock universe. With a $26.9B market capitalization, ERICSSON LM TELEPHONE CO operates at meaningful scale within the Manufacturing sector, providing competitive advantages in distribution, procurement, and customer reach.

Despite positive momentum (67th percentile), revenue contraction of -15% creates a divergence between price action and fundamental trajectory. This divergence suggests either that the market is looking through near-term weakness or that technical factors are temporarily inflating the stock. Investors should assess whether the revenue decline reflects cyclical weakness or structural challenges.

The margin cascade tells an important story: gross margins of 44% (+1.7pp vs sector) narrow to operating margins of -1% (-2.4pp vs sector) and net margins of 0.1%, yielding a gross-to-net conversion rate of 0%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $11.03, ERICSSON LM TELEPHONE CO is trading near fair value based on current fundamentals. Our value factor score of 63/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at EV/EBITDA of 36.6x (at a premium), P/B of 4.3x, P/S of 0.4x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a Low uncertainty rating to ERICSSON LM TELEPHONE CO. The company exhibits strong financial stability with a beta of 0.66, conservative leverage (44% D/E), and a stability factor in the 80th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: low beta of 0.66 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 80th percentile and quality factor at the 66th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 44% provide a buffer against cost pressures; above-average stability (80th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate ERICSSON LM TELEPHONE CO's capital allocation as Poor. Key concerns include low returns on equity (1.6%), weak asset returns (ROA 0.5%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — ERICSSON LM TELEPHONE CO significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, ERICSSON LM TELEPHONE CO receives a Hold rating with a composite score of 62.7/100 (rank #444 of 7,333). Our quantitative framework assigns a No Moat (39/100, trend: stable), Low uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 66/100.

Our analysis supports a neutral stance on ERICSSON LM TELEPHONE CO. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.