Is Ericsson Still a Buy After a 67.6% Three-Year Surge? Contrasting Bullish DCF Valuations with Cautious Analyst Ratings and Geopolitical Headwinds

The question of whether Ericsson (OM:ERIC B) remains a compelling investment after a 67.6% surge in shareholder returns over three years hinges on a nuanced interplay between valuation models, analyst sentiment, and geopolitical risks. While discounted cash flow (DCF) analyses suggest the stock is significantly undervalued, cautious analyst ratings and evolving geopolitical tensions paint a more complex picture for long-term investors.

DCF Valuations: A Bullish Case for Undervaluation

Recent DCF models underscore Ericsson's potential as a bargain. Simply Wall St estimates an intrinsic value of SEK 139.61 per share, implying a 34.5% discount to the current market price according to their analysis. Alpha Spread's base-case analysis further supports this, calculating an intrinsic value of SEK 93.77, or a 4% undervaluation per their report. These figures are bolstered by projections of robust free cash flow generation, with estimates of SEK 23.2 billion in 2026 and SEK 24.6 billion by 2029 based on these forecasts. Such long-term cash flow visibility, driven by Ericsson's 5G infrastructure investments and global partnerships, forms the backbone of the DCF optimism.

However, DCF models assume stable cash flow growth, a premise that may clash with real-world uncertainties. For instance, narrative-based fair value assessments-incorporating qualitative factors like market sentiment-suggest Ericsson is overvalued, with fair value estimates ranging from SEK 77.62 to SEK 87.38, below the current market price according to Yahoo Finance. This divergence highlights the tension between quantitative projections and qualitative risks.

Analyst Ratings: A "Hold" Consensus Amid Mixed Signals

Analyst ratings for Ericsson in 2025 reflect a "Hold" consensus, with one sell rating and two hold ratings as reported by MarketBeat. The average 12-month price target stands at $9.80 (equivalent to approximately SEK 87.38), implying a 24% upside from the current price based on consensus data. While this suggests cautious optimism, it contrasts sharply with the DCF-derived valuations. For example, Simply Wall St's SEK 139.61 intrinsic value implies a potential 55% upside, far exceeding the analyst consensus.

The disparity may stem from differing assumptions. Analysts appear to factor in near-term headwinds, such as declining U.S. sales (down 17% in Q3 2025) and geopolitical uncertainties as noted in Light Reading. Meanwhile, DCF models prioritize long-term cash flow resilience, assuming Ericsson's 5G contracts-like the GBP 2 billion deal with VodafoneThree-will stabilize revenue streams per Simply Wall St's narrative.

Geopolitical Risks: A Double-Edged Sword

Ericsson's exposure to geopolitical risks complicates its investment thesis. On one hand, regulatory shifts in key markets present both opportunities and threats. Germany's push to exclude Huawei from 5G networks could benefit Ericsson, positioning it as a preferred non-Chinese vendor according to Alpha Spread. On the other hand, China-a market that contributed 3% of Ericsson's 2025 revenues-has subjected the company to national security reviews, with reports suggesting potential exclusion as detailed by Industrial Cyber. Such a move could cost Ericsson $1 billion annually, according to 2024 estimates as reported by Light Reading.

The U.S., Ericsson's largest market (43% of 2025 revenues), also poses challenges. Recent declines in U.S. sales, partly due to foreign-exchange effects, have raised concerns about the sustainability of its North American growth according to Yahoo Finance. Meanwhile, Ericsson's cybersecurity initiatives-aligned with U.S. Department of Homeland Security (DHS) guidance-aim to mitigate threats from nation-state actors and advanced persistent threats (APTs) as stated in Ericsson's blog. While these efforts enhance resilience, they also highlight the growing complexity of operating in politically sensitive sectors.

Balancing the Scales: A Strategic Investment Perspective

The contrast between DCF valuations and analyst ratings underscores a critical dilemma for investors. DCF models, with their focus on long-term cash flows, suggest Ericsson is undervalued and poised to outperform if its 5G and 6G strategies succeed. Analysts, however, temper this optimism with caution, emphasizing geopolitical volatility and near-term revenue risks.

For investors, the key lies in assessing their risk tolerance and time horizon. Those with a long-term outlook may find the DCF case compelling, particularly if Ericsson's cybersecurity investments and 5G contracts translate into stable cash flows. Conversely, short- to medium-term investors might align with the "Hold" consensus, factoring in the uncertainty of geopolitical developments and market dynamics.

Conclusion

Ericsson's investment appeal post a 67.6% surge remains a nuanced proposition. While DCF analyses paint a bullish picture of undervaluation, analyst ratings and geopolitical risks introduce caution. The company's ability to navigate regulatory challenges in the U.S. and China, while capitalizing on 5G expansion, will be pivotal. For now, Ericsson appears to straddle the line between opportunity and risk-a stock that demands careful monitoring but retains the potential to deliver outsized returns for patient investors.