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Lehman Downgrades NT; Slashes EPS Target
By Mark Evans | August 26, 2008
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:
More thoughts on the downgrade can be found on Barron’s Tech Trader Daily.
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