RE: 5-10 price target?you'r so lucky my boy you just said. Your nuts. Once the REAL Nortel Networks news comes out, this stock will be 10+ easy.
WELL HERE IS THE "NEWS" ABOUT NORTEL MY FRIEND. READ IT!!!!!!!!!!
News from The Globe and Mail
After the Fall
Though Nortel Networks' stock has lost half its value in the past month, that doesn't necessarily make it cheap: There are significant risks overhanging the stock, and it could go lower yet, ANDREW BELL reports
Andrew Bell
02:23 GMT-05:00 Saturday, February 24, 2001
Nortel Networks Corp. stock, once the darling of Bay Street, has now lost more than half its value since late January. The shares are trading at their lowest level, relative to forecast operating profit, in more than two years.
But be wary: Despite the more attractive pricing, it's getting harder to find reasons to like this stock and it could be dead money for months.
Simply put, there's no near-term catalyst to drive the shares higher. And there won't be one until telecom spending in the United States shows signs of recovery.
That almost certainly won't happen for six months, at the earliest, and quite possibly longer.
Plus, the bombshell of Thursday, Feb. 15 -- when the company reduced its forecast for 2001 operating profit growth to 10 per cent from 30 -- may not be the last.
Nortel, once known for its reliable profit growth, is now a black box. Nobody knows exactly how well, or poorly, the fibre-optics giant will do this year. So why take the risk of buying its shares?
That was the verdict this week from top analysts and money managers on both sides of the border. All are smarting from the hiding Nortel has dished out to their clients and investors.
To be sure, an eventual recovery in the telecom sector will probably give a nice pop to Nortel shares, not least because cash-strapped telecom carriers will have a shot at raising money to buy equipment again.
But for now, even analysts such as David Powers at Edward Jones, who officially still has a "buy" rating on Nortel's stock, admits the shares "are likely to have limited upside in the near term."
Nortel stumbled along at around $30 on the Toronto Stock Exchange this week -- down from $46 just nine days ago. On that day, Feb. 15, the company horrified investors around the world by suddenly admitting that its sales are much slower than expected as the U.S. telecom market contracts violently.
Nortel has about 3.1 billion shares outstanding, so the selloff since Feb. 15 has wiped out $50-billion or $34-billion (U.S.) in investors' wealth.
The stock traded this week at about $19 on the New York Stock Exchange, which means investors valued the company at $59-billion, down from more than $250-billion in July when the shares fetched $89 in New York or $124.50 (Canadian).
In fairness, other big techs have also crashed. But Nortel's 70-per-cent-plus slide from its high has been one of the worst.
The case against holding Nortel shares, let alone buying them, is easy to build:
Anxious analysts still say the company's profit projections are far too optimistic. "I have to believe there's another shoe to drop with respect to outlook," says one.
The market for telecom equipment is contracting rapidly with no bottom in sight.
Demand for Nortel's most glamorous product -- fibre-optic networks -- is falling the fastest, some observers say.
Perhaps worst of all, the company has done a good job of convincing investors that it has still more bad news to come by its stubborn refusal to reduce profit and sales projections to a level that analysts say is realistic.
John Roth, Nortel's now-beleaguered CEO, shocked shareholders in his Feb. 15 release by acknowledging in a press release that he thinks the company's revenue will grow only 15 per cent this year to around $34.8-billion, much weaker than the company's own projection in January that sales would rise 30 per cent.
Nortel had stuck doggedly to that earlier forecast even as rival makers of telecom gear slashed their sales expectations, hammering their stocks. Nortel "reiterated it so many times, that you almost had to believe that they had all of the orders in the bag," one Toronto analyst gripes.
Nortel also warned last week that its per-share earnings, excluding writeoffs and other charges to account for acquisitions, will rise just 10 per cent this year from last year's 74 cents. As recently as January, the company was still forecasting 30-per-cent profit growth this year.
If earnings did grow 10 per cent this year, as the company says, Nortel would make about 81 cents a share.
But badly bitten analysts no longer accept Mr. Roth's predictions. "We believe these targets are unreasonable," says Sanford C. Berstein & Co. analyst Paul Sagawa.
Most analysts now expect an average profit of only 72 cents a share for the company this year, down from their Feb. 15 prediction of 96 cents.
Sanford's Mr. Sagawa was one of the few Nortel watchers to warn investors last year that Nortel shares were richly priced when he branded them with a mediocre rating of "market perform." He now sees Nortel's sales growing 9 per cent in 2001 and he projects earnings of only 59 cents a share.
Nortel now says it will probably lose 4 cents a share in the current three months, dramatically down from the 16-cent profit analysts expected.
And it says sales will be just $6.3-billion, much less than the looked-for $8.1-billion.
The unexpected first-quarter loss will make it virtually impossible for Nortel to bounce back fast enough to meet its current profit forecast for the year, observers complain. "Mathematically, we find this hard to achieve," says Nesbitt Burns Inc. analyst Brian Piccioni, also among the first to go cold on Nortel shares last year by cutting his rating to "market perform."
Ominously, there are troubles this quarter in Nortel's marquee business of selling equipment for fibre-optic telecom networks.
"It is clearly the optical business, which comprises over 30 per cent of NT's revenues, which is mainly to blame for the shortfall," J.P. Morgan analyst Greg Geiling says. Long-distance fibre-optic lines were "an area of massive expansion in 2000," he says, so "it is no surprise that this area is now seeing the sharpest decline in spending."
That includes Nortel's well-worn OC-192 technology for shooting lots of data along fibre -- the trick that gave it a global lead in fibre.
If telecom spending goes into a two-year funk, "who knows who's going to be the technological leader at the other side of that?" one analyst warns.
OC-192 may thrive, he says, "but I would think that the growth will be in other segments of optical networking at some point."
But what of the much-vaunted explosive growth of the Internet, which was supposed to propel Nortel to ever-higher sales? There's growing skepticism there too.
"AT&T's research division reports a deceleration to a doubling every 12 months," Mr. Sagawa warns.
More importantly, he adds, last year's frenzy of network building has created a glut of carrying capacity in the United States.
To be sure, Nortel's stock is cheap, at least compared with its sky-high valuation in 1999 and 2000. At $19 in New York this week, the shares fetched just over 26 times the 72-cent earnings analysts predict for this year.
Even a skeptic such as Mr. Sagawa thinks the battered shares may soon be good value. "We would be interested in NT should the stock reach a stable bottom of $18 or below," he says.
But Nortel shares have slumped to even lower price-earnings multiples in the past. In the third quarter of 1998, when Asia's economic woes hurt the stock, Nortel dropped 44 per cent to trade at the equivalent of $8 in New York for a PE multiple of just 17. If the multiple fell to that level again, the shares could drop another 35 per cent.
Sit this one out.
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