NT Opinion
[Harry: The article does not mention assumptions for break even results. Consensus seems to project 10 to 15 decline in
cap ex industry wide. I still don't see orgainc growth in the industry as opposed to carriers not being able to hold off spending any longer. In addition the carriers have no pricing traction to pay for the upgrades. So what we may see are one time gains as opposed to sustainable growth.
In addition the new finaning seems to pledge all NT's assets to the bankers. If the nuclear winter goes on longer than expect the shareholders get nothing. ]
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Nortel: Knocking on Heaven's Door?
A couple of years ago, investors saw no risk in owning Nortel [Image]
at $80. Could it be, that by delaying purchase now that the
shares have collapsed to around $2, they are repeating history?
Know when to hold'em…..
Certainly a purchase of Nortel shares is set firmly in the speculative
realm. The promise of increased capital spending in the tech area has
yet to define itself. Class action lawsuits naming the company are
virtually impossible to quantify. The damage done to a once venerable
name will take years to reverse itself. That having been said, buyers
have been picking up the embattled name. And made good money in the
bargain.
The shares bit at a 52-week low of 43 cents in October 2002. Since
then the shares have risen five-fold to 2.00-- up a nifty 10 percent
in the last week alone.
The best thing that happened to Nortel over the last year was Enron
and the other names we have heard ad nauseam. Bumped from page one,
Nortel has been able to restructure its business, improve its balance
sheet and focus on bringing the company back to profitability. Nortel
CFO Doug Beatty has given guidance that the behemoth should break-even
or even be profitable by the second quarter of 2003.
Smaller may well be better.
Nortel will consolidate its shares-likely 5 or 10 for one at the
present price-- in the first quarter of 2003, ostensibly to maintain
its NYSE listing. There are currently nearly 4 billion shares
outstanding evidencing a market cap of $7.5 billion. Trailing twelve
month trailing revenues as at September 2002 were just under $12
billion-half that of the previous trailing twelve months.
The employee count will soon be 35,000, down 60 percent from its peak.
First Call's poll of 35 analysts show a mean loss of 38 cents for
fiscal 2002 (as at December 31st) and a loss of 12 cents for fiscal
2003. The company expects to have $3 billion in cash by the end of
fiscal 2002.
Nortel has also cancelled a $1.2 billion credit facility as excess to
its needs. The company has a $750 million credit facility that expires
in 2005, which it currently has no plans to draw on. Financing talks
with banks and Export Development Canada for secured bond facilities
and other guarantees are expected to conclude-hopefully positively--
in Q1 2003.
[Image] No surprise here….
In typical style, Wall Street has had Nortel as a consensus hold right
through its run since last October from 43 cents to $2.00. While the
shares still represent a speculation at these levels, the fundamentals
and corporate initiatives show a keen desire to restore the company to
at least a modicum of respect among investors. The first quarter of
2003 will be critical to the continuation of the improvement and will
be predicated on the perception that Nortel's customers are beginning
to spend on telecom infrastructure again. As the old adage goes, all
you can lose is $2.00 a share--hell of a lot better odds than $80.00 a
share.
Nortel has pared itself down to four core businesses from the dog's
breakfast of being all products to all customers. It is now divided
into Wireless, Wireline, Optical and Enterprise Networks. Not only is
the company easier to analyze as a result, it has structured itself
with inter-related divisions that will maximize the opportunities
within its current and future client base. The company believes that
not only will this restructuring serve to re-establish it as an
industry leader, but open up new revenue streams. Let's hope so.
Breakfast of Champions or Chumps?
It's easy to wee in Nortel's Wheaties. As a matter of fact, it has
been the dominant refrain reprised since investors replaced reason
with bloodlust. Not that those burned don't have a right to feel
violated as pensions were decimated, a child's college education
cancelled and retirement just a fond memory. Is there a lesson here?
Sure there is: stuffing a portfolio with any one stock will almost
always result in the financial equivalent of reflux disease-whether a
penny dreadful or an icon such as Nortel.
The smart money, or at least those investors with a horizon past
Friday, are likely picking up a bit of the once favored stock. A
thousand shares at the peak cost 80k. A thousand shares now cost 2k.
And the company seems-only time will tell with how much success-to be
working hard to bury the past, alive.
For whom does the bell toll?
[Image]
Whether the corpse finally succumbs or investors finally hear
the scratching on the coffin lid is the enigma. Perhaps a small dollar
cost averaging program might be the way to go.
If viewed as a spec, Nortel seems at least a calculated risk. And if
it has any more problems, there's always the spectre that some
big-tech will buy it.
The conclusion? A small punt in Nortel won't ever be dull.
D I S C L A I M E R :[Image]
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