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Technology Stocks : Nortel Networks (NT)
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To: Kenneth E. Phillipps who wrote (696)9/13/1998 12:15:00 AM
From: Paul Fine   of 14638
 
The following report from Merrill Lynch(dated 9/11/98; picked up off the Yahoo NT thread) is why I don't use a full service broker. Their 12 month price target is where the stock was nearly at last week, yet they have an accumulate(MT) and Buy(LT). Also, their rationale has nothing new since the mid-July earnings results from both NT and Bay.

"12 Month Price Objective: C$85-90/US$55-60
Estimates (Dec) 1997A 1998E 1999E
Price/Book Ratio: 4.4x
ROE 1998E Average: 20.5%
LT Liability % of Capital: 22.3%
Est. 5 Year EPS Growth: 26.0%
ú We are transferring coverage of Nortel with an intermediate term
Accumulate rating and a long term Buy rating.
ú We are forecasting EPS of US$1.84 for 1998 and $2.33 for 1999. We have
established a 12 month target of US$55-60 based on 27-30x our 1999
estimate under US GAAP (US$2.02).
ú We expect Nortel's recent acquisition of Bay Networks to add to the
volatility of quarterly results for the next few quarters. This has
significantly increased the short-term risk but overall we believe it
moves Nortel in the right direction.
Fundamental Highlights:
ú Nortel has one of the more comprehensive product portfolios of the
major telecom equipment suppliers. Its original central office and PBX
switching business represents less than half of its revenue with new
wireless,
optical, and data products now making up the majority.
ú Nortel's near term challenges include a smooth integration of Bay and
improving margins. Longer term it will face increasing competition from
Lucent and Cisco.
ACCUMULATE Long Term BUY"
ÿ
Paul
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