UBS Upgrades NT to “Buy”

By Mark Evans | Published: September 29, 2008

UBS analyst Nikos Theodosopoulos has upgraded Nortel to a “buy” – apparently for the first time in more than four years – based on the belief the impending sale of the metro Ethernet network business could lead to the sale of the whole company or a break up that would leave Nortel as an enterprise-focused player.

“If Nortel is not broken apart or sold completely, the company will continue to fade away,” he said.

(For those of you who remember, perhaps the IBM-Nortel speculation is more believable now.)

In a research report, Theodosopoulos said Nortel’s MEN and CDMA units could attract 20% premiums to their intrinsic value given their strategic importance. He said China’s Huawei is seen as the leading candidate for MEN, while Ericsson, Huawei and Nokia Siemens could be interested in the CDMA business.

Theodosopoulos has a target price of US$3.25. Nortel is currently trading at $2.55.

Source: National Post

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  • http://www.dsam.ca Duncan Stewart

    When Nikos goes to a “buy” it is worthwhile paying attention. He is smart, good at valuation and has been uniformly bearish for years. But it is worth noting that his upside is $3.25 — he is making a VERY deep value call and only sees 30% upside (although that is pretty good in these markets!)

    I have no position in NT at these levels — but if I were short I would think about covering at least some…

    DS

  • exNorteler

    about time !!!
    Market is acting like it acts always, irrational on the downside when the sentiment is negative and irrational on the upside when the sentiment is positive. If folks here think that NT will be around in some shape of form 3 years from now, then this is a great time to buy.

  • protosphere

    “If Nortel is not broken apart or sold completely, the company will continue to fade away”, I agree with Mr. Theodosopoulos obvious statement here. Even Mike Z. stated once that companies either grow or perish and Nortel certainly isn't growing.

    I disagree with “Nortel’s MEN and CDMA units could attract 20% premiums to their intrinsic value given their strategic importance.” given no one has tripped over their feet to snap up MENs yet.

    Also, CDMA is an aging technology and in steep decline for Nortel. An area that accounts for almost all of their earnings while already losing money for a decade now. It is not difficult to see what comes next.

    Never mind a 20% strategic premium in this climate, they will be lucky to sell it at a substantial discount in my opinion.

    Why would anyone consider buying any part of them now when they can acquire their market through natural attrition, or buy it at a firesale less encumbrances under insolvency later, or is this a too taboo a topic to bring up yet… it shouldn't be. After all, it is fading away…

  • Nortelhand

    I am sure Mike Z will want to snap up a million or so shares at this level. Remember he said $19 was a gift; or did he mean that selling at $19 was a gift?

  • The Psychiatrist

    Oh C'mon anyone- what about RIMM's 45 percent drop recently?

    maybe we should be talking about them having to sell their parts,as the rate of the shareprice drop would suggest that they will be a prime takeover by Nokia,or will be looking to sell at least a part of themself to a competitor?

    Waht about ALU now at .32 times sales?,I think Huawei is looking at them as well.-Terry Mathiews- do you have any pocket change?

    Hey wait-maybe Nikos will put an upgrade on all the stocks in the sector!

  • The Psychiatrist

    I have no position in NT at these levels — but if I were short I would think about covering at least some…

    Duncan- you did suggets earlier this year that Nortel would find a bottom in the $9-$10 range,do you remember that?

    here is your quote-

    ““Nortel is indeed trading at low historical valuations. But my research tells me that the next six months will see investors’ feelings towards the telecom equipment manufacturers get worse, not better. And despite Mike Z’s [Nortel CEO Mike Zafirovski] best efforts on the factors he can control — costs and products — the factors that are out of his control will dominate investor sentiment and Nortel’s share price.

    I wouldn’t short Nortel here — it is too cheap to do so safely. The company could get bought, and the possible downside from here is limited to perhaps another $2 to $3, implying a $10 to $11 floor price over the next six months.”

    For what it’s worth to NT watchers, Stewart said he would also short Ericsson, which currently sports a price-to-sales multiple almost double Nortel and Alcatel.”

    was that just an opinion off the top of your head at the time,or was it a conclusion you reached after some of your own analysis?

  • http://www.dsam.ca Duncan Stewart

    Fair comments. My earlier guess at a potential “bottom” for Nortel was written in a rather different economic market. But try to keep in mind that the number I set as a possible low water mark (although hideously optimistic in hindsight) was lower than ANY sell side analyst had as a target price. So I was actually the most bearish out there…and I had previously recommended shorting Nortel at about $20.

    Trying to determine “value” is always tricky – and it is admittedly even tougher when various telecom companies (that have never traded under about 0.4x sales in more than 20 years) start trading at 0.2x sales!

    It is tough trying to pick a bottom —and I could be wrong now (obviously — the stock was down again today, although in an admittedly pretty bad day for the market.)

    And my Ericsson short has also made a lot of money — it isn't down as much as Nortel (who is, aside from some banks?!) but it is off 53% in the last 12 months.

    My comments about partial covering a short are not me just mouthing off. I run a hedge fund and if you have been short NT the last few months you have made a TON of money. Taking a bit off the table when it could get bought any day is not bad advice from a risk perspective.

  • exnt2

    grapevine rumors are that it is sold – pretty much done deal. MEN gone. Wirelesss gone. Enterprise gone. MEN going to Huawei. Enterprise to IBM. Wireless not sure but most programs are axed. 4G is stopped. CDMA only program surviving. There are layoffs going on this week with another coming in november.

    it is over folks.

  • Observer

    it is over folks.

    Yes..not only for Nortel but for a lot of other companies as well. This is actually the end of the modern banking system & 20th century capitalism as we know it. It was fun while it lasted.

  • Clint

    Huaweii are merely one of the rumoured suitors. Can't see them being allowed to buy the division. Too communist. Politics would make other telcos in North America Jittery. Won't happen.
    Enterprise to IBM is possible but it will completely move overseas where IBM have a presence in cheap market/labour realms.
    CDMA will be next to be sold after MEN. You can count on that.
    Absolutely no reason why CDMA will be kept. It will completely go to CHINA
    where there is still a profit and business for it, in Chinese hands.
    4G is dead and LTE will be sold.
    That is what I heard from my inside sources who work there.
    But all this, rumours, rumours, rumours and more rumours. All conjecture.
    It seems with all that has happened that the company cannot indeed survive unless it fragments, or ironically ceases to exist.

  • broadbandbill

    Yo Psycho,

    Comparing apples to poisoned apples; RIMM can recover, that’s not the case with NT and ALU….–bb

  • broadbandbill

    Didn't you see my post: “Not over, it's been over for some time”…–bb

  • more

    I suspect Nikos meant to use the word “bye bye” instead of “buy” in his recommendation

  • jayemmay

    So, Theo “upgrades” Nortel to a buy because he forecasts a target price of $3.25. If memory serves me well, was it not Theo who, on January 24, 2008, forecast a target price of $15.00

    Just another example of foolish forecasting.

    jayemmay

  • more

    I suspect Nikos meant to use the word “bye bye” instead of “buy” in his recommendation

  • jayemmay

    So, Theo “upgrades” Nortel to a buy because he forecasts a target price of $3.25. If memory serves me well, was it not Theo who, on January 24, 2008, forecast a target price of $15.00

    Just another example of foolish forecasting.

    jayemmay

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