| Telecom Equipment : The already beaten up telecom equipment sector is under attack again today, this time its Sanford Bernstein lowering numbers. Analyst Paul Sagawa anticipates slower growth in carrier capital spending in 2001 than 2000, meaning that telecom equipment makers will see a slowdown in sales growth. Sagawa sees 2000 telecom equipment sales at an annual growth rate of over 28%, but he expects 2001 sales to slow to a growth rate of under 20%. As a result, ratings were cut for Ericsson (ERICY), Cisco (CSCO) and Nortel (NT) and revenue and earnings estimates were revised downward for Lucent (LU), Motorola (MOT) and Nokia (NOK). The already low expectations and inexpensive valuations were the only factors that saved MOT and LU from being downgraded, but Lucent FY01 sales estimates were cut from $43 bln to $40.8 bln and FY01 EPS from $1.41 to $1.34, closer to the consensus estimate of $1.32. Although the talk of a missed quarter is still very much alive on the trading floors, it looks like Lucent's slide could be coming to an end as the shares are now trading at just 24x FY01 consensus estimate, and when the Q3 uncertainty is in the past, we would be surprised to see the shares go any lower. Motorola is a similar case, the stock has already been beaten down by the problems in the wireless handset business and the company has increased exposure through their communications semiconductor operations, MOT shares are down 40% YTD, and at 20x FY01, the downside risk appears limited. Nevertheless, Sagawa cut his FY01 revenue and EPS estimates for MOT from $49.2 bln to $47.9 bln and from $1.51 to $1.48, still higher than the $1.44 consensus. Nokia has also taken its lumps, the stock is down 20% in the past three months. Sagawa likes NOK and Palm (PALM) for their relative independence from carrier spending. Wall Street is struggling to tone down expectations for the communications market after a long period of outstanding growth, but to a great extent the bar has been lowered and as a result there are some values out there. - Matt Gould, Briefing.com |
