NT - good to play the bumps and the longer term depending on your entry points ...
FROM RBC
Nortel (NT) - US$2.45
Nortel released its Q4 results and published its 10K, which represents another step towards becoming current with its financial reporting. Revenues for the December quarter were weaker than expected, coming in at US$2.6 billion vs. the consensus of US$2.8 billion. EPS of US$0.02 was in-line with consensus. Gross margins in the quarter were better than expected however, at 45.3% vs. RBCCM’s estimate of 40%. Nortel also ended 2004 with a strong backlog of US$4.1 billion, and a cash balance of US$3.7 billion.
While Nortel is making significant progress in becoming current with its financial restatements, carrier consolidation and new entrants into the market are likely to make Nortel's revenue recovery much more challenging going forward. From a strategy point of view, Nortel is taking the right steps to diversify its customer and revenue base while
simultaneously refilling its revenue pipeline. RBCCM believes that it may take several more quarters for Nortel to retrace lost market share, grow at the rate of the market, and potentially grow faster than the market growth rate of 4-6% per year. With the financial issues nearly behind them, investors will begin to more closely evaluate key metrics such
as Nortel's success with China 3G, its ability to leverage partnerships, and the integration of PEC Solutions while stemming competitive pressures. Nortel is ranked Sector Perform, Average Risk, with a price target of US$5.50. |
