Ericsson Beats Four Straight but Q3 Costs Are Arriving
Ericsson beat EPS forecasts for four consecutive quarters, but the stock trades 17% above analyst consensus price target at 17.7x forward P/E. Management has warned that semiconductor input costs will
Ericsson Beats Four Straight but Q3 Costs Are Arriving
NEW YORK, October 31 —
Telefonaktiebolaget LM Ericsson (publ) (ERIC) has beaten analyst EPS estimates four straight quarters, most recently by 35.2%, yet at $11.18 the stock trades 17% above the analyst consensus price target. The CFO has warned investors that semiconductor input costs will build gradually in coming quarters, with Q3 Networks margins already guided lower.
- ERIC at $11.18, forward P/E 17.7x, approximately 17% above analyst consensus target of $9.52
- Q2 Cloud Software and Services adjusted EBITA margin: 12.4%, up from 9.6% a year earlier
- Free cash flow before M&A: SEK 0.4 billion in Q2 2026, against SEK 8.2 billion returned to shareholders
What Four Beats Built
Telefonaktiebolaget LM Ericsson (publ) sells radio access network gear, 5G software, and managed services to mobile carriers globally. The beat streak traces to a multi-quarter cost program: operating expenses excluding restructuring fell SEK 1 billion year over year in Q2 2026 through headcount cuts and the iconectiv divestment. The clearest proof sits in Cloud Software and Services, which provides software platforms and managed networks for carriers: adjusted EBITA margin hit 12.4% in Q2, up from 9.6% a year earlier, a level incoming CEO Per Narvinger called "a template" for other divisions. Group gross margin reached 48.4%, from 48.0%, in a quarter where total organic sales slipped 1%.
The Inventory Signal
Networks, Ericsson's largest segment selling 5G RAN hardware and lifecycle services, posted Q2 adjusted gross margin of 50.4%, up from 49.5%, against an 8% reported sales decline. Management has already guided that figure to 48%, 50% for Q3, citing a higher share of lower-margin rollout projects. The cash picture adds a second constraint: free cash flow before M&A fell to SEK 0.4 billion from SEK 2.6 billion a year ago, absorbed by a SEK 5 billion inventory build staged for Q3. Ericsson simultaneously returned SEK 8.2 billion to shareholders, drawing net cash from SEK 68.1 billion to SEK 59.8 billion, a capital return pace that now depends on reserves, not operations.
| Ticker | Mkt cap | Fwd P/E | 52-wk |
|---|---|---|---|
| ERIC | $36.2B | 17.7x | +8.9% |
| NOK | $47.9B | 17.7x | +19.7% |
| SWKS | $20.6B | 15.1x | +14.4% |
| CCI | $37.7B | 30.3x | -0.9% |
| CIEN | $45.5B | 27.0x | +69.2% |
| INSG | $81M | n/a | -71.9% |
The Number That Changes It
CFO Lars Sandström told the Q2 2026 call that semiconductor input costs 'increased further in Q2' and 'the financial impact from this will start to build up gradually in the coming quarters.' That warning compounds an already-guided Networks margin step-down for Q3. A stock at 17.7x forward P/E, worth running through a DCF calculator as cost headwinds build, needs the beats to continue; management has signaled they won't. The bear thesis breaks only if Q3 Networks gross margin lands at the top of guidance and Cloud Software and Services holds its record EBITA margin. Run the free Telefonaktiebolaget LM Ericsson (publ) deep-dive →
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Frequently Asked Questions
Did Ericsson beat earnings estimates?
Yes, Ericsson beat analyst EPS estimates four straight quarters, most recently by 35.2%. However, the stock trades at $11.18, which is 17% above the analyst consensus price target of $9.52, and management has warned that semiconductor costs will build gradually in coming quarters.
What is Ericsson's current valuation?
The stock trades at a forward P/E of 17.7x, approximately 17% above analyst consensus price target of $9.52. At $11.18, this valuation is elevated relative to guidance for rising semiconductor costs in Q3 and beyond.
What is Ericsson warning about for Q3?
CFO Lars Sandström warned that semiconductor input costs increased in Q2 and the financial impact will build gradually in coming quarters. Management has already guided Q3 Networks gross margin to 48%-50%, down from 50.4% in Q2, citing higher share of lower-margin rollout projects.
How is Ericsson's free cash flow trending?
Free cash flow before M&A fell to SEK 0.4 billion in Q2 from SEK 2.6 billion a year ago, absorbed by a SEK 5 billion inventory build staged for Q3. Ericsson simultaneously returned SEK 8.2 billion to shareholders, drawing net cash from SEK 68.1 billion to SEK 59.8 billion.
Which Ericsson segment is improving?
Cloud Software and Services achieved adjusted EBITA margin of 12.4% in Q2, up from 9.6% a year earlier, a level incoming CEO Per Narvinger called a template for other divisions. This performance partially offset challenges in the Networks segment, Ericsson's largest business.
Ericsson has beaten analyst EPS estimates in each of its last four quarters — with the most recent miss by 35% to the upside — lifting ERIC to $11.18, roughly 17% above the average analyst price target. Yet the company's own CFO has warned investors that semiconductor input costs will 'start to build up gradually in the coming quarters,' and Q3 Networks margins are already guided below the Q2 level that drove the streak.