Lehman Brothers analyst Jeff Kvaal has downgraded Nortel to “under-weight” from “equal-weight” while slashing its 2008 earnings estimate to 38 cents a share from 92 cents.
Lehman still has a target price of $6. In earning-morning trading, Nortel is down 17 cents to $5.79 after touching a 52-week low of $5.73 earlier.
Kvaal’s downgrade is based on his belief that margin expansion in enterprise and metro Ethernet networks may not offset “carrier headwinds” in the near-term.
“In our opinion, Nortel has made significant progress restructuring the company and has a number of potential revenue and margin drivers. However, we believe these are balanced by several possible headwinds. We believe Nortel is facing challenges with regard to revenue growth in the Carrier Networks division, which is currently the engine of profitability for the company. Enterprise Solutions and Metro Ethernet Networks currently have the brightest outlooks for future growth, in our opinion, but are significantly less profitable than Carrier Networks. To us, this suggests modest revenue growth for the entire business is likely to continue, while the company may have near-term challenges expanding its profit margins.”
Here’s Lehman EPS table showing its actual, old and new estimates:
The Lehman analyst essentially brought his estimates in line with the rest of the street. Of course, all the others revised their estimates in the immediate days after the CC, THREE WEEKS AGO!
Looking at those estimates above, and comparing them to what was on Yahoo today, it appears that the "high" estimates were Lehman's
Why was this news?
Observer
From a market cap standpoint, Nortel is now a mid-cap stock headed for the small cap world. In a few months. $5/share will look like attractive offer by private equity that can clean the place up and combine Nortel with others that have gone private. Expect another leg down in the market and Nortel to eclipse its all time low very soon.
pm
Wednesday June 11, 2008
Nortel Networks affirmed its full-year outlook during an investor meeting Wednesday, a move that sent its shares higher.
The Toronto-based telecom-equipment giant reiterated remarks it made last month in its first-quarter earnings report, saying it expects revenue to grow in the low single digits compared with 2007. Nortel added that gross margin should be 43% of revenue this year, while operating margin as a percentage of revenue should increase by about 300 basis points compared to last year.
How about another re-affirm ?
jayemmay
The EPS table shown by Lehman is plain incorrect. EPS 2008 1Q is -0.28 (not -0.05). EPS 2008 2Q is -0.23 (not -0.11).
It's bad enough that the opinions of analysts are often useless, it's horrible that they cannot report the numbers correctly.
commentor
"to silence much of the BS"?
I hope you mean internal "BS" at Nortel VS external in blogs and investor community.
The market is reacting in a fair way to Nortel. You have an immature CTO who is missing up the very fabric that made Nortel what it is, you have invisible business unit leaders who have no weight or value in the industry. You have new Sales VP whom I have no idea what progress he have done. A marketing leader who is doing whatever. and the list goes on.
MikeZ is locked with this team because he brought them on-board and he just can not start firing them. 3 years was too much chance for them. I am sorry, but they do not deserve to be @ nortel.
TOC, we all want Nortel to win, but you have a leadership team full if BSers and they are hurting everyone around them except themselves. Going private is a very wise thing you mentioned. I think they go private and bring some real leadership (from within) and fire these useless execs.
Tongue.In.Cheek
A Reverse Split requires the approval from Shareholders which is not in place today. Any mention of a Reverse Split lately is bogus until a proposal is presented to shareholders and a vote held, typically done at Annual General Meetings.
Personally, I want to see Nortel succeed but am also disappointed with recent market activity. Maybe going private would be the best option for them to silence much of the BS while structuring the company for the future.
Disgruntled Ex Nortel
another reverse 10 to 1 stock split in: 5,...4,...3,...2,..1,...
(but make sure to sprinkle in some buzzwords like "market focused", "core values", "six sigma", "synergy", etc)
exnt
The problem is that Nortel is way, way below critical mass to compete as a full line telecom supplier. They have basically the same product line as Ericsson, ALU, Huawei, ZTE, and Nokia-Siemens, but they are less than half the size of any of them. They either have to grow, which is the opposite of what they have done since 2000, or split up into nimble focussed companies specializing in a particular field. For example, since there is no synergy between carrier and enterprise, and enterprise has the growth prospects, why not spin it off and let it compete with Avaya and Cisco? Metro ethernet is basically the old optical product line and it has some prospects, why not let it spin off and compete with Ciena et al.
Heading towards zero
This is starting to get ridiculous. How long until this company is delisted?
Disgusted
Way to go Mike.
Pretty soon not only you but everybody will be able to get the stock for free.
Lehman Downgrades NT; Slashes EPS Target
Lehman Brothers analyst Jeff Kvaal has downgraded Nortel to “under-weight” from “equal-weight” while slashing its 2008 earnings estimate to 38 cents a share from 92 cents.
Lehman still has a target price of $6. In earning-morning trading, Nortel is down 17 cents to $5.79 after touching a 52-week low of $5.73 earlier.
Kvaal’s downgrade is based on his belief that margin expansion in enterprise and metro Ethernet networks may not offset “carrier headwinds” in the near-term.
Here’s Lehman EPS table showing its actual, old and new estimates:
More thoughts on the downgrade can be found on Barron’s Tech Trader Daily.
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