Citing tighter capital spending by carriers and concern about Nortel’s future among enterprise customers, TD Securities analyst Chris Umiastowski has downgraded Nortel to a “reduce” and suspended his stock price target.
The decision to downgrade NT to a “reduce”, he said, is based on the expectation that Nortel will have sales materially below consensus, and force Nortel into asset sales sooner rather than later.
The suspension of the target price is based on the belief Nortel’s shares are “trading more like a call option on the successful outcome of a business transformation along with some asset sales. This situation is incredibly hard to value, and the stock price is naturally going to be highly volatile”.
Umiastowski said he believes more restructuring is necessary, and that $900-million in cuts are needed to give Nortel a “realistic shot” at having 10% operating margins.
“Unfortunately, this will require cash, and would put the company closer to being in a cash crunch. It seems the only way out is to sell assets, which Nortel is currently trying to do (e.g. MEN business is for sale),” he wrote in a research report. “We believe that Nortel must either succeed in selling assets at reasonable prices, or face increasing risk of inevitable bankruptcy.”
Umiastowski does not believe Nortel will file for bankruptcy protectionin 2009 but he’s concerned the company may not be able to sell its metro Ethernet business or other assets given the current market conditions.
Furthermore, NT was in a way worse relative position in 2001 and 2002 for cash, cash flow, debt etc. They had a -$18.6B cash flow in 2001 and -$2.9B in 2002. These are FACTS and they survived then!
Should_have_Sold_in_Feb_2004
Chris U is completely unreliable. How come S&P and Reuters have NT rated at 3 stars, HOLD and Buy, 2.48 rating respectively? Reuters link is here http://www.reuters.com/finance/stocks/recommend... . Chris U has NO credibility.
protospherical1
He is right in saying stock is “trading more like a call option" where options can expire worthless if the strike price is not mean, in other words zero (to subliminally reiterate Mark Sue's target price)
Hardly speculation for gain with "inevitable basnkruptcy" looming short of the MENs sale at a "reasonable price" which is unlikely...
I think he is very wrong about Nortel not folding in 2009 though, when they are already looking into it in 2008 =)
Perhaps he is with the consensus they can keep making interest payments and costs with the cash they have left through 2009 as Nortel reiterates while downplaying folding like they did their revisions.
I agree Nortel will not be the ones to pull the plug to allow them restructuring capital, than drag it out as long as they possiblly can. I disagree that some one will let them though.
Ex_Nortel
He has been wrong all the way down...and he is still behind the curve. Nortel is about to overtaken by events beyond its control.
The psychiatrist
what good is this guys' advice when his downgrade has long been reflected in the shareprice.
I just wish these so called after the fact "analysts" would not be so eager to offer up their "expert analysis" as most investors would be better off without them.
One has to wonder about the connection between the media's push with its "Bankruptcy headlines" and the analysts "late" or after the fact downgrades.
Where were these "headlines" when Nortel was trading above $5 just 4 short months ago, after all if Nortel's future has a serious consideration of bankruptcy in it 4 months is not long enough that it wouldn't of been mentioned as a possibillty at the time.
I do remember however that it was Mark Sue stating that if Nortel "executes perfectly" they could be an $18 stock in 2011,now he has assigned $0 as his target only months later......gee thanks alot Mr.Sue,what would we do without you!
Umiastowski Downgrades NT, Suspends Target Price
Citing tighter capital spending by carriers and concern about Nortel’s future among enterprise customers, TD Securities analyst Chris Umiastowski has downgraded Nortel to a “reduce” and suspended his stock price target.
The decision to downgrade NT to a “reduce”, he said, is based on the expectation that Nortel will have sales materially below consensus, and force Nortel into asset sales sooner rather than later.
The suspension of the target price is based on the belief Nortel’s shares are “trading more like a call option on the successful outcome of a business transformation along with some asset sales. This situation is incredibly hard to value, and the stock price is naturally going to be highly volatile”.
Umiastowski said he believes more restructuring is necessary, and that $900-million in cuts are needed to give Nortel a “realistic shot” at having 10% operating margins.
“Unfortunately, this will require cash, and would put the company closer to being in a cash crunch. It seems the only way out is to sell assets, which Nortel is currently trying to do (e.g. MEN business is for sale),” he wrote in a research report. “We believe that Nortel must either succeed in selling assets at reasonable prices, or face increasing risk of inevitable bankruptcy.”
Umiastowski does not believe Nortel will file for bankruptcy protectionin 2009 but he’s concerned the company may not be able to sell its metro Ethernet business or other assets given the current market conditions.
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