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UBS Slashes Target Price by 25%
By Mark Evans | January 24, 2008
Just when you think analysts are starting to get bullish about Nortel again, you run into a bear.
Citing a weaker capital expenditure outlook, UBS analyst Nikos Theodosopoulos has reduced his 12-month target price on Nortel to $15 from $20, while leaving his rating unchanged at “neutral”.
“We estimate global telecom equipment spending grew 2.5% in 2007 and expect 2.5% growth in 2008,” he said in a research report. “The decelerating growth of telecom spending has continued
from the 14% growth in 2004. We believe this low growth environment will make revenue growth and margin expansion in the sector challenging for 2008.”
As a result, Theodosopoulos is lowering his EPS estimates to 89 cents and $1.05 for 2008 and 2009 respectively - compared with $1.13 and $1.32. He said a huge issue for Nortel will be the performance of its CDMA business, which generates more than 60% of Nortel’s profits.
As well, Theodosopoulos reduced his expectations on revenue growth to 2.5% in 2008 and 2% in 2009 - compared with earlier estimates of 4.3% and 2.6%.
Theodosopoulos’ target price reduction comes on the heels of target increases by TD Securities’ Chris Umiastowski and Scotia Capital’s Gus Papageorgiou. As well, RBC’s Mark Sue reduced his target price recently.
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