Why Nokia Stock Popped on Wednesday

Key Points

• Superior, Wisconsin, tapped Nokia to help build a new fiber internet network.

• dMCA/LightSpeed and ePlus will also assist on the project.

• No monetary value for the project was named.

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Nokia (NYSE: NOK) stock climbed 4% through 1:05 p.m. ET Wednesday after the Finnish telecom equipment giant announced that the city of Superior, Wisconsin, has picked Nokia to build a "next-generation ... wholesale open-access fiber network which ISPs [internet service providers] can use to deliver broadband services."

Image source: Getty Images.

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Nokia's big news

To be precise, Nokia has been tapped to "provide its fiber and IP [internet protocol] solutions as part of ConnectSuperior," which is the name of the new fiber network designed to bring broadband internet access to "26,000 currently underserved residents." According to Nokia, other participants include "dMCA/LightSpeed" (apparently, privately owned telecommunications systems integrator Lightspeed Technologies) and small-cap information technology firm ePlus (NASDAQ: PLUS).

Still, Nokia says its own fiber and IP technology will "power" Superior's new broadband network.

What Nokia did not say is how much this project will cost, how much revenue Nokia might collect from its work on ConnectSuperior, or whether the project will be profitable.

Is Nokia stock a buy?

Granted, an investor can be optimistic on these points, but without further detail on the specifics of the project and how material it will be for Nokia, it's difficult to say whether the nearly $1 billion increase in market capitalization that Nokia received today is wholly justified.

What I can tell you is that, at a current stock market valuation near $25 billion, with more than $1.7 billion in trailing-12-month free cash flow (FCF), at a dividend yield of 3.7%, Nokia probably still needs to be growing its profits at 10% or better for the stock to be any kind of a bargain.

The good news is that, according to analysts polled by S&P Global Market Intelligence, Nokia's FCF is expected to grow north of 20% next year -- and Nokia stock's therefore probably a buy.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.