BofA cuts Ericsson stock price target on revenue miss, cost pressures

BofA cut Ericsson’s price target to SEK77 from SEK88 and kept an Underperform rating after a Q2 revenue miss and Q3 guidance below consensus. The bank trimmed FY2026-2028 revenue estimates by 0-4% and lowered EBITDA forecasts by 1-14%, citing component cost inflation from elevated memory pricing and a flat radio access network market. Ericsson also reported adjusted EPS of $0.1258 vs $1.19 expected and revenue of $5.43B vs $5.68B, with management warning component costs will rise further.

Analysis

This is less about a one-off miss and more about an unfavorable earnings convexity setup: when a hardware vendor is in a flat end market, any incremental component inflation tends to hit EPS disproportionately because pricing power lags the cost curve. That makes the next 1-2 quarters the danger zone for further estimate cuts, especially if memory remains tight and customer capex stays defensive. In that regime, the market usually stops caring about isolated margin beats and starts marking down revenue durability and forward EBITDA quality.

The second-order effect is that Ericsson’s pain is not just self-inflicted; it can become a share-shift story across the RAN stack. If one vendor has to absorb input inflation while buyers are not expanding budgets, procurement teams will push harder on pricing and vendor financing, which favors the lowest-cost or most strategic supplier and can compress industry returns. The more important read-through is that the broader telecom infrastructure group may be entering a slower revision cycle, even if the headline market is already at a low-growth multiple.

The contrarian mistake is to treat an already-depressed EV/EBITDA as a cushion; in cyclical hardware, valuation floors usually fail when the denominator keeps leaking. What would falsify the bearish view is a clear stabilization in Networks revenue plus evidence that memory costs are peaking and being passed through without volume loss. Absent that, this looks like a grind-down story over 1-3 months rather than an immediate collapse, but with a worse 6-12 month setup if carrier spending stays flat.

Key Decisions for Investors

• Short ERIC on any post-downgrade bounce; use a 1-3 month horizon and cover if management guides Networks revenue stabilization or margin recovery on the next print.
• Buy ERIC put spreads 3-6 months out rather than outright puts to express downside while limiting theta risk if the stock stays range-bound.
• Relative-value idea: long MU / short ERIC as a component-inflation spread trade for the next 2 quarters; thesis breaks if memory pricing rolls over or MU guidance weakens unexpectedly.
• Watch NOK as a potential relative beneficiary only if subsequent checks show Ericsson losing share on price; otherwise avoid forcing a telecom pair trade in a flat RAN market.
• Set an alert on ERIC if consensus revenue/EBITDA estimates fall another 3-5% from here; that would signal the downgrade cycle is not done and justify adding to the short.