Raymond James downgrades Ericsson, citing concerns about margins and growth.

In premarket trade on Tuesday, Ericsson ERIC shares slightly declined after Raymond James downgraded the telecom equipment provider, citing upcoming margin pressure and growth hurdles.

As concerns about market trends continue to worsen, analyst Simon Leopold lowered his rating on Ericsson ERIC shares from outperform to market outperform. He noted that the intellectual property resolution with Apple AAPL and the settlement with the Department of Justice did not "sustainably catalyse the stock." As a result, any inventory absorbed by telecom providers in the United States is probably going to "impact on results and sentiment," according to Leopold.

Leopold stated in an investor note that despite the possibility for improvement between the first and second halves of the year, "we think this insufficient to recommend the shares given organic [constant currency] growth issues and margin pressure."

Leopold noted that while profitability appears worse than anticipated, trends are "consistent with forecasts," and the company is still cheap, selling at 11.6 times 2023 earnings and a sales ratio of 0.7.

Furthermore, the analyst stated that margin expansion in Ericsson's ERIC cloud software and services division is "illusive" as it has only attained mid-single-digit operating margins and does not appear likely to assist management in increasing total profitability.

The company may benefit from favourable news coverage during Mobile World Congress at the end of the month, since Ericsson ERIC shares have had trouble finding support. There are potential catalysts in the future, like reduced foreign exchange headwinds and an improvement in U.S. consumer spending in the second half of the year, but it's probable that investors are more concerned about meeting the 2024 EBITA objective.

A bumpy year was predicted when Ericsson ERIC released fourth-quarter results last month that fell short of forecasts.

Almost all analysts are wary of Ericsson ERIC. Wall Street analysts rank it a HOLD, and authors of Seeking Alpha give it a HOLD rating. Additionally, ERIC receives a HOLD rating from Seeking Alpha's quant system, which consistently outperforms the market.