S&P analyst Ari Bensinger has downgraded Nortel to a “sell” from to a “hold” amid concerns about “heightened competition and carrier consolidation hampering marketing growth opportunities”. Bensinger expects Nortel’s sales grow by just 3% in 2007. Commenting on the departure of CFO Peter Currie, Bensinger said the company needs to “better stabilize its management group, especialy as it is looking to improve profitability through cost-cutting and non-core asset disposals”.
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LocalTechWire’s The Skinny highlights the fact Nortel shares have jumped 30% since its reverse-stock split (10 for 1). While The Skinny concludes the stock is “no longer a dog”, analysts appear to be unenthusiastic with 24 of 33 surveyed by Thomson/First Call calling it a “hold”, while only six call it a “buy” and two a “strong buy”.
Obviously, the Ethernet supply deal with BT, which was recently announced, is a key factor but you have to wonder what else investors are excited about when it comes to Nortel. Are they finally buying into CEO Mike Zafirovski’s plan to restructure the company so it can become a leaner, more focused entity? Do they think partnerships with high-profile firms such as Microsoft and LG are going to Nortel an edge within a highly-competitive industry? And/or is Nortel stock just cheap compared with its telecom equipment peers.
More: Speaking of telecom equipment makers, Motorola is slashing 3,500 jobs, or 5% of its workforce, to reduce operating costs in the wake of disappointing fourth-quarter results. The company said the job cuts will save its about $400-million over the next two years.
Maybe investors’ enthusiasm for Nortel is healthily tempered. The stock has climbed a modest 30 cents to $22.84 in mid-afternoon trading despite the positive piece in Barron’s. Interesting.
Nortel’s PR machine continues to work its magic. After a positive story recently in the Wall St. Journal, the company is getting some serious love from Barron’s, which believes Nortel shares could climb by more than a third as its restructuring starts to bear fruit. I don’t have access to Barron’s Online but the article starts like this:
“MIKE ZAFIROVSKI EARNED HIS CHOPS under Jack Welch at General Electric, then the corporate world’s farm system for operations-minded chief executives. He went on to Motorola, where he tended to a struggling handset division — and helped lay the groundwork for that company’s RAZR-led revival.
Now he may be giving Nortel Networks (ticker: NT) a sharp edge of its own. The Toronto-based maker of telecom-infrastructure gear, battered by the collapse of the tech bubble and an accounting scandal, tapped Zafirovski to lead a turnaround last November. One year later the fruits of his work are starting to become apparent.”
Update: Joe Ismail, a technical analyst with Maison Placements Canada, told Reuters that “”The big story today is the one about Nortel in Barron’s and that could probably push Nortel’s stock on the upside”.
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Investment firm Robert W Baird maintain its “neutral” rating on Nortel, while raising its 12-month target price from $2 to $20 to reflect Nortel 1:10 stock consolidation. In a research note, the investment firm said its EPS estimates for 2006 and 2007 have been raised from $0.07 to $0.74 and from $0.20 to $2.11, respectively. In New York yesterday, Nortel fell 35 cents to $21.15.
Nortel has implemented its plan to consolidate its stock on a 1 for 10 basis so instead of a Carl Sagan-like public float of billions and billions of shares (actually 4.3 billion), there will now be only 433 million shares. Nortel shares opened at $24.40 in Toronto – a level not seen for a few years. “True shareholder value will be driven by ongoing progress and company performance, but this step helps create a better foundation on which to build,” Peter Currie, Nortel’s executive vice-president and chief financial officer, said earlier this year.
The mystery – at least to me – about why Nortel CEO Mike Zafirovski sold some shares earlier this month has been solved. According to the company, Mike Z. was given 2.265 million restricted stock units on Nov. 15, 2005 in accordance to the Nortel 2005 Stock Incentive Plan. The RSUs vest in five equal annual installments beginning on Nov. 15, 2006, and are settled in Nortel common shares upon vesting. The shares that Mike Z. sold are required by Nortel under the plan in order to pay withholding taxes at the time of the vesting of the RSUs. Of course, some of you already knew that but now it’s official.
Not sure what to make of Mike Zafirovski’s
“purchase” earlier this week of 2.26 million Nortel shares (the filing says $0 per share) and sale of 180,706 shares at $2.07 each for proceeds of $374.061. Who knows, maybe he’s got a tax bill or doing some renovations. Zafirovski still owns 2.08 million shares. Some other corporate officers to sell shares recently include Steve Slattery (37,414 shares in September) and Dian Joannou (28,508 shares in August). Note: This post has been amended to correct a mistake. Zafirovski purchased the 2.26 million shares in Nov., 2005.
CBC.com did an investment feature on Nortel, focusing on who’s trading the stock (mostly retail investors, it appears) and the stock’s outlook. The most bearish comments came from Ross Healy, president and CEO with Strategic Analysis Corp. and a long-time Nortel watcher. Healy suggests Nortel’s fair market value is $1.33 a share and he describes the company as a “catastrophe in waiting”. “I look at the long, long, long-term trading pattern of Nortel for the past three decades, and if I had to make guess as to where the stock might bottom in a bearish market I would say that it could double-bottom at its 2002 low,” he said. Healy may be right but Nortel’s troubles (or, conversely, its prospects) may hinge more on market conditions and the state of the company’s technology portfolio, which has been hampered by the company’s accounting woes in recent years, than the current management team. In conversations with many of the senior executive that CEO Mike Zafirovski has recruited over the past year, the common theme is optimism and sincerity. People such as George Riedel and Dietmar Wendt really want to see Nortel do well for all the right reasons. Granted, they probably have sweet incentive packages that will reward them for success but investors may not care too much if Nortel can regain some of its momentum. Of course, Zafirovski and his management team have many, many challenges to overcome. In particular, they still need to figure out where the company is focused strategically. There’s a lot of talk about Wi-Max, 4G and IP-TV but few people look at Nortel as a market leader in any of those areas. Truth be told, 2007 looks to be a make or break year for Nortel given investors – and customers – are looking for strategic execution now that most of the corporate baggage (accounting scandal, class-action lawsuits, etc.) has been addressed. Update: In the name of fairness, Scotia Scotia has a $2.80 12-month target price for Nortel
Does it surprise anyone that Nortel decided to issue its fourth-quarter results on Friday long after the markets closed? It's a class P.R./I.R. technique to avoid getting media coverage. In any event, the company said it lost $2.6-billion last yea (including $2.5-billlion make a couple pesky class-action lawsuits go away), compared with a $207-million loss in 2004. Revenue was $10.5-billion compared with $9.5-billion. Nortel also said it has adjusted $1.5-billion of revenue over the past three years – nearly $300-million more than what it had targeted just a week ago. Nortel's also found a way to get its stock price over $5: a reverse stock split that could see shareholders approve a consolidation as high as 10 for 1. If you think about about, Nortel could get its stock back to the record high of $124.50 (July 2000, John Roth's the CEO, sales are booming) by doing a 1:30 stock split.
There's an outfit called BDR Inc. (a.ka. webuynortelshares.com) that is offering to purchase Nortel shares privately "at a substantial premium". Describing themselves as "a duly registered Ontario, Canada Corp." and "an agent for a loss recovery program", they require information such as how many shares you own and your average price per share. My advice: proceed with caution.
Business Edge has a bang-on story about the unhealthy obsession that many Canadians have with all things Nortel despite the fact the company has been struggling and its stock has dropped 20% since CEO Mike Zafirovski took over last November. The article laments the fact Canadians pay so much attention to Nortel, they ignore more interesting high-tech stories such as Axia, Aastra and MacDonald, Dettwiler & Associations.