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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: wlheatmoon who wrote (53494)	7/28/1999 12:11:00 PM
From: John Pitera	Respond to of 86076

I sent you a PM with the AXE scoop

To: wlheatmoon who wrote (53494)	7/28/1999 12:57:00 PM
From: John Pitera	Read Replies (1) \| Respond to of 86076

We need to think wireless, take a look at how the increase in wireless put the cherry on NT's Quarter. We should try to focus on the wireless companies as they are being bought left and right, such as SKYT, while others such MCOM have new Powerful Partners (Paul Allen) . Aerl is a Local wireless company, lets try to put together a list of all of the wireless companies. what everyone will want is wireless internet devices. -ng- How does that sound to you? John ----------- NT: Upside EPS Surprise Driven by Wireless Upturn Cisco Sys Inc(CSCO)* Rating: 1M 7/27/1999 Salomon Smith Barney ~ July 28, 1999 07/28/99 Nortel Networks Corp. (NT $84.56,2-M,Tgt $90.00) Alex M. Cena --SUMMARY:--Nortel Networks Corp.--Telecommunications Equipment * Post close yesterday NT reported 2Q99 operating EPS of $0.55 vs $0.40 last year, and our consensus est of $0.50. * Quarterly release was followed by upbeat conference call w/management * Revs increased 30% to $5.4 bn vs our est of up 25% to $5.2 bn. Carrier revs up 21% YOY to $4.1 bn from $3.4 bn & vs our est of $3.9 bn; Enterprise up 75% YOY to $1.3 bn from $761 mn & vs our set of $1.4 bn * Strength in Carrier segment driven by optical ntwks & pickup in wireless; Enterprise strength driven by acquired Bay business. * Gross margin of 43.2% vs. our est of 43.7%. Op mgn was 10.7% vs 11.0% est * We continue to recommend NT w/a 2-M rating. Ests & Price Targets likely to move up slightly after we have had an chance to review our model w/co 07/28/99 Nortel Networks Corp. (NT $84.56,2-M,Tgt $90.00) Alex M. Cena --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 12/98 EPS $0.27A $0.41A $0.42A $0.72A $1.87A Previous 12/99 EPS $0.33A $0.50E $0.55E $0.87E $2.25E Current 12/99 EPS $0.33A $0.55A $0.55E $0.87E $2.25E Previous 12/00 EPS $N/A $N/A $N/A $N/A $2.75E Current 12/00 EPS $N/A $N/A $N/A $N/A $2.75E Previous 12/01 EPS $N/A $N/A $N/A $N/A $N/A Current 12/01 EPS $N/A $N/A $N/A $N/A $N/A Footnotes: 07/28/99 Nortel Networks Corp. (NT $84.56,2-M,Tgt $90.00) Alex M. Cena --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:2M Prior:No Change Price (7/26/99).....:$84.56 P/E Ratio 12/99.....:37.6x Target Price..:$90.00 Prior:No Change P/E Ratio 12/00.....:30.7x Proj.5yr EPS Grth...:21.1% Return on Eqty 98...:16.0% Book Value/Shr(99)..:22.40 LT Debt-to-Capital(a)11.2% Dividend(99)........:$.30 Revenue (99)........:21960.00mil Yield...............:0.4% Shares Outstanding..:666.0mil Convertible.........:No Mkt. Capitalization.:56317.0mil Hedge Clause(s).....: Comments............:(a) Data as of the most recently reported quarter. Comments............: 07/28/99 Nortel Networks Corp. (NT $84.56,2-M,Tgt $90.00) --OPINION:------------------------------------------------------------------ We continue to recommend Nortel with a 2-M rating. In fact, yesterday after the close Nortel reported 2Q99 EPS, excluding Bay Networks acquisition charges, of $0.55 compared to $0.40 reported last year. This compared with our consensus estimate of $0.50. Based on current results, we are likely to raise our estimates and price targets slightly. Nortel remains among the least expensive companies in our coverage universe despite the fact that fundamentals on the margin are improving and two major lines of businesses are now contributing to growth as opposed to a single major business unit contributing all the growth in the preceding few quarters. REVENUES AND ORDERS: The upside surprise in earnings was driven by top line growth. In fact, Revenues (as reported) increased 30% to $5.4 billion from $4.2 billion last year and compared to our estimate of $5.2 billion. Orders (as reported) for the quarter rose 34% YOY to just under $6 billion from $4.5 billion last year for a book to bill of 1.10. SEGMENT REVENUES: A faster upturn in wireless,with continued strength in broadband combined with on target figures in the enterprise space, enabled NT to generate better than expected revenue. Carrier segment revenues were up 21% to $4.1 billion from $3.4 billion and compared to our estimate of $3.9 billion. The segment showed substantial increases in optical network system sales and access solution sales in the US, Europe and Asia Pacific. In fact, access sales growth was greater than 50%. Mobile revenues were much stronger in 2Q99 at just under 20% growth, which is impressive given that Brazil wireless performance was down 40% YOY. We believe management's guidance on mid-teens wireless growth for the full year may be conservative given the solid performance in the quarter, an order book that is already equivalent to all of last year and easy comparisons for the rest of the year. Estimates would be especially low if Brazil were to experience a rapid accelration later this year. Enterprise revenues were up 75% YOY to $1.3 billion from $761 million and compared to our estimate of $1.4 billion. Growth was driven substantially by the increase in enterprise data revenues due to the merger of Bay Networks. Corporate and Other revenue for the quarter decreased 49% YOY to $20 million from $39 million vs our estimate of $25 million. PROFITABILITY: Gross margin for the quarter was 43.2% vs. 41.8% last year and compared with our estimate of 43.7%. Operating margin for the quarter was 10.7% vs. 9.2% last year and our estimate of 11.0%. BALANCE SHEET: The balance sheet remains strong. Days sales outstanding were 111 vs. 109 in the previous quarter and 116 days in the September quarter. Days in inventory declined to 69 days vs 77 days a year ago and up modestly from 64 days last quarter. Accounts receiveable for Nortel as well as other telecommunications equipment companies have drifted upward over the last few years driven by increased growth overseas as well as greater equipment financing requirements by customers.