UBS Joins Parade; Drops Target Price

By Mark Evans | Published: September 12, 2008

Citing Nortel’s decision to continue it focus on Long-Term Evolution (LTE) technology, UBS has dropped its 12-month price target to $6 from $7.50.

UBS analyst Nikos Theodosopoulos said Nortel’s LTE plans face several obstacles, including the fact its rivals are consolidating. He’s also down on Nortel’s extensive technology portfolio.

“Nortel lacks scale and mind share in the faster growing data and video segments,” he said in a report, adding this makes difficult for Nortel to compete against suppliers more focused on a specific market.

In lowering his target price, Theodosopoulos said its reflects “an EV/EBITDA multiple of just under 4x … justifiable given Nortel’s inability to generate free cash flow in the last decade”.

Theodosopoulos has been lowering his target price throughout 2008. In February, he dropped it to $11 from $15 amid disappointment that the company’s business transformation was “slower than expected”. In April, he lowered it to $8.80 from $11 citing lower enterprise sales growth.

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  • Another Nortel Watcher

    No growth engine. It's a killer.

    The longer that the board takes to initiate corrective action, the more difficult it becomes to pull out of the death spiral.

  • The Psychiatrist

    amazing

    I guess that explains the drop over the last week,while we were waiting for (hopefully) a positive 3rd quarter,both RBC and UBS were busy dumping some of their Nortel holdings and once they were finished,they so graciously informed us about Nortel's challenges that justify their downgrades.

    Boy what would we ever do without those ever so important analysts?

    It has become so obvious that the investment industry has lost whatever little integrity it had to begin with!

    Money +Humans = not a very honest outcome

  • NewBlue

    “'Nortel lacks scale and mind share in the faster growing data and video segments,' he said in a report, adding this makes difficult for Nortel to compete against suppliers more focused on a specific market.”

    Yeah, but are these competing suppliers hyperconnected? I think not!

    Who gives a flip about mind share – or innovation and vision – when you're hyperconnected, right Clint?

  • Pro

    To The Psychiatrist:

    I see no evidence that UBS and RBC owned any significant amounts of Nortel shares, then liquidated the shares, then downgraded the stock. Perhaps you will share with us your evidence of such transgressions?

    You say it is obvious that they operate without integrity, yet you slander without any evidence.

    I understand that in bear markets and amidst weak-performing companies and falling stocks people generally lose patience and want to challenge the integrity of others. But saying it does not make it true.

  • yes4aapl

    Mark I sense a sadness in your post.
    Theodosopoulos is well known pumper_bullish analyst of NT.
    He is lowering targets just to catch a fish. in other words he thinks that it will be unlikely for NT to go higher than $6 but he does not show how low NT can go.
    In case NT goes to $3 he will lower his target to $4. His targets will always be bullish.
    There is only 3-4 analyst who are bearish on NT and they have been right about that for a long time. Do you remember who they are? The guys who are just right about NT making new all time lowest levels each week?

  • protosphere

    Analysts traditionally overstate, so how low will it go this time.

    This is the 3rd lower target for Nortel by UBS this year as it also made a few new 52 week lows this year alone too.

    Lowering targets after decline sorta defeats the concept of forecast.

    Making a new low of $5.01 post extreme reverse split, is hardly reassuring given their challenges and outlook to put it dispassionately politely.

    Today $6 seems to be the consensus:
    UBS' Theodopoulos target $6
    RBC Capital Markets analyst Mark Sue target $6
    Lehman target $6.

    Last Year:
    September 11, 2007 -Scotia Capital analyst Gus Papageorgiou $34 target price.

    September 20, 2007 RBC Mark Sue dropped his price target to $22 from $28
    February 16, 2007 RBC Mark Sue increased his price target to $32 from $28
    Mar 19, 2007 RBC Mark Sue target price of $32.

    June 21, 2007- Citibank's Genovese had a $35 price target on the stock June 2007.

    Heaven help anyone who listened to the “hold” consensus over the last 4 years and 90% later. Can we conclude analysts have been way off for too long? Which begs the question of how low will it go this time indeed?

  • more

    You nailed it…the art of publishing analyst reports involves using yesterday's stock price to make tomorrow's forecast. Some training in behavioral economics is in dire need by the analyst community…anybody heard of the “recency effect”?

  • Observer

    Behind the curve as usual. Keep shorting before the October surprise.

  • yes4aapl

    Behind the curve as usual. Keep shorting before the October surprise.
    =====
    re
    You are so mysterious!
    Which way to surprise? Bull or Bear?

  • protosphere

    I am confused about Altzman score. Yahoo's Latest Income Statement and Balance Sheet for Dec 07 indicates the following (not for 2008):

    1. Earnings Before Interest & Taxes:EBIT 651,000
    2. Total Assets 17,068,000
    3. Net Sales 10,948,000
    4. Market Value of Equity 2,758,000
    5. Total Liabilities 14,310,000
    6. Current Assets 9,147,000
    7. Current Liabilities 6,772,000
    8. Retained Earnings -36,532,000

    My Alzman Score calculates to .04 for these Dec/07 numbers where I wonder where they got minus 2.07 ( note that 2,969,000 “Long Term Deferred Asset Charge” is included as part of total assets above /the expiring Tax Credit and we saw how well the stock took it last time only part of it was removed)

    Z-SCORE ABOVE 3.0 –The company is considered 'Safe' based on the financial figures only.
    Z-SCORE BETWEEN 2.7 and 2.99 – 'On Alert'. This zone is an area where one should 'Exercise Caution'.
    Z-SCORE BETWEEN 1.8 and 2.7 – Good chances of the company going bankrupt within 2 years of operations from the date of financial figures given.
    Z-SCORE BELOW 1.80- Probability of Financial embarrassment is very high.

    .04 is still outrageously high in probability but can you imagine -2.07 that Altzman came up with! I wonder where they got their numbers or of mine are off somewhere or if these take into account for recent numbers /2008 (which I suspect).

    The minus 2.07 must be for more current numbers in this increasingly dire trend, and now with CDMA in decline, an area that accounts for almost all their earnings… wow… analyze this , analyze that… defer this defer that… perhaps the best indication may be keeping an eye on their cash vs. assets sold and Nortel paper printed to see rate of cash burn and how much time they have left… I dunno

  • protosphere

    Here is the Altzman calculator yes4appl was kind enough to furnish if you'd like to give this a try yourself:

    http://www.creditguru.com/CalcAltZ.shtml

  • Nortel watcher

    With today's bankruptcy filing of Lehman and the ongoing consolidation taking place in the financial sector that no longer includes Bear Stearns and Merrill Lynch, I wonder how difficult it will become for Nortel to roll over their debt let alone issue new debt?

    The above will certainly affect liquidity and their pps.

  • Vested Interest

    Something is brweing. Vendor payments have been frozen.

  • Observer

    You are so mysterious!
    Which way to surprise? Bull or Bear?

    Muahaha…is the post from Vested Interest about vendor payments true ? only 2 weeks til end of Q3

  • Den

    The Canadian Government will never let NT go bankrupt, how would it look if Canada Flagship of Technology goes bankrupt. I don't care about predictions, analyst or some dam Altzman Score. That's thew bottom line

  • broadbandbill

    Den,

    That is what the Bush Administration believed about Wall Street. Crap, regardless of pride and origin of ownership, has a way of showing its smelly side when we least expected…–bb

  • Pingback: UBS Downgrades NT | All About Nortel

  • yes4aapl

    OK I am nr 5 on this blog now.
    open link and look at the right side of the screen under People tag
    http://www.allaboutnortel.com/2008/09/12/ubs-jo…
    and question how to get that green screen back?
    So yes, MatPat has some creditors support for its actions. We just don't know, how much of the support.

  • yes4aapl

    OK I am nr 5 on this blog now.
    open link and look at the right side of the screen under People tag
    http://www.allaboutnortel.com/2008/09/12/ubs-jo…
    and question how to get that green screen back?
    So yes, MatPat has some creditors support for its actions. We just don't know, how much of the support.

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