Yes, I mentioned that:
There's a lot NOT TO LIKE about its business (low margins, too many analysts following it, extreme competition, lawyers now piling on, etc.
But I believe most of these suits never get certified because of lack of evidence. Besides, companies carry insurance against such suits.
Now the "me too" analysts lower their ratings (Wachovia)...
And the company announced last week they were going to delay their 10-K. Again, much not to like here!
But as of Dec. 31 Nortel had nearly $4-billion in cash on its balance sheet. I could be wrong here, as I have in the past, but I still feel like the worst is priced in and I am comfortable with the risk/reward after this dramatic drop.
New snips in my search for level-headedness among the drivel:
NEW YORK, March 16 /PRNewswire/ -- There's no doubt that the telecom industry today is in better shape than it was two years ago, but the future promises further consolidation and the continued reign of the current market leaders, according to a new report from Light Reading Insider (http://www.lightreading.com/insider).
The report, "Telecom Recovery Leaders and Laggards," published by the subscription research service of Light Reading (http://www.lightreading.com), combines in-depth financial assessment with qualitative analysis by Light Reading editors and Heavy Reading analysts to rank 27 major U.S. vendors on their chances of outsmarting the competition and rising to the top.
The surprises? Nortel and Juniper have both strengthened their positions in the recent recovery, joining Cisco as one of the stronger hands. This bodes well for their future: As the market consolidates, they are likely to be perceived as leaders.
"It's been only a modest recovery, but companies that have strengthened their positions are going to be in the catbird seat as the market consolidates and smaller players lose their seats at the table," says Light Reading's U.S. editor, R. Scott Raynovich. "Our analysis tells you exactly who has strengthened their position and who is weak."
According to UBS' research note published this morning, the company's share price depreciated recently on account of its financial restatement for 2003. The analysts mention, however, that the restatement is unlikely to affect Nortel Networks’ 2003 EPS. Nortel Networks' share price depreciation is an attractive buying opportunity at present, the analysts add.
UBS mentions that Nortel Networks' earnings growth in 2004 and 2005 is likely to be faster than the market. Given the strong position in the VoIP services, the company would post above average growth in wireline services in the forthcoming years, the analysts say. However, the company is unlikely to achieve the consensus estimates in Q1:04 on account of seasonal dynamics, UBS adds.
The EPS estimates for 2004 and 2005 are $0.18 and $0.30, respectively. The P/E estimates for 2004 and 2005 are 29.1x and 18.0x, respectively.
UBS maintains its "buy" rating on Nortel Networks.
Globe and Mail
By DAVE EBNER
TELECOM REPORTER
Thursday, March 18, 2004 - Page B11
Mr. Glofcheski said the items at the centre of the second review, accruals and provisions, are part of the cash reconciliation analysis, but said the first restatement had "very little impact" on cash.
According to Nortel's regulatory filings, $70-million (U.S.) of cash and cash equivalents had been reclassified as part of the first restatement. This reduced cash on its balance sheet as of Dec. 31, 2002, to $3.79-billion from $3.86-billion. On the liabilities side of the ledger, notes payable of $100-million was reduced to $30-million as $70-million was reclassified, balancing the reduction in cash.
The reason, Nortel said, was "to reflect, upon consolidation, that a bank note payable by one subsidiary was fully collateralized by, and could be offset against, a deposit in the same bank by another subsidiary."
Re: Buy or Sell???+Merrill Conference2
by: ioldys 03/18/04 04:10 am
Msg: 460945 of 461645
• Accounting Issues: Investors asked a number of
questions regarding the potential impact of and the
decision leading to Nortel’s 10K earnings delay and
potential restatement of prior earnings. The Company
maintained these actions were undertaken under the
advice of Wilmer, Cutler and Pickering LLB and
Nortel’s internal audit committee. No new
incremental details on the restatement were offered
but management did reiterate that the focus of the
review remains accruals and provisions. Typically,
although not for certain, as in the last restatement,
accrual and provision revisions do not materially
impact cash. Regarding the CFO and Controller paid
leave, Nortel commented that this action was done to
ensure the right financial leadership was in place for
the Company at this time and in the interest of
expediting the review.
• Our estimates have built in improvements in gross
margins and relatively modest operating expense
increases. If our positive view on these lines proves to
be optimistic, there could be downside to our earnings
estimates.
• While the capital spending environment from carriers
seems to have stabilized, we do not see overwhelming
evidence of a return to substantial positive capex
growth or revisions. Further weakness here could
impact our top line assumptions. Also, carrier
consolidation could negatively impact spending.
• The Company is currently undergoing a restatement of
its financials. Although the magnitude of the earnings
revision is currently unknown, we highlight the
possibility of an adverse market reaction to the stock
should the restatement be significant.
Recommendation
We are maintaining our price objective of
US$9.25/C$12.30 based on 35x our 2005 $0.27 EPS
estimate. We note however that we would revisit our
estimates and price objective if the outcome of the
restatement were to materially impact our forecasts. While
within the Company’s pre bubble range, this multiple is
above the average 24x however warranted in our view as
we are coming out of an extremely depressed period for
the market as a whole, and beginning to see evidence of
strong earnings growth.
Risks
• We are still very much in the early days of a top line
recovery. We could see continued volatile quarterly
results as the end market for various segments,
including optical and traditional voice switching,
remains soft.
***************
Unnerved by a sterner accounting culture, companies have been increasingly reaching back years to ratchet down reported profits by tens or even hundreds of millions of dollars. Eyeing the March 15 filing deadline for calendar 2003 annual reports, Bristol-Myers Squibb (BMY:NYSE - news - research) , P.F. Chang's (PFCB:Nasdaq - news - research) , Veritas (VRTS:Nasdaq - news - research) and Nortel (NT :Nasdaq - news - research) this week joined a fast-growing string of public companies to say prior financial reports inflated real business trends.
The number of restated audited annual financial statements hit a record high of 206 last year, according to Chicago-based Huron Consulting Group. Observers say 2004 is already shaping up as a banner year for revisions.
"There are certainly more high-profile restatements and you're hearing about them more" compared to past years, said Jeff Brotman, an accounting professor at the University of Pennsylvania.
For Bristol-Myers Squibb, Nortel and Network Associates (NET:NYSE - news - research) , recent restatements came on top of prior restatements, much to the irritation of investors. In at least two cases, the embarrassing double restatements prompted internal shifts; Nortel put two of its financial executives on leave as part of a bookkeeping probe. Network Associates fired PricewaterhouseCoopers, according to various news reports, after the auditor cited "material weakness" in its internal controls in the company's annual report.
Probably the biggest reason for the wave of honesty is a host of new corporate governance and accounting rules in the wake of the corporate reform legislation known as Sarbanes-Oxley, which went into effect a year and a half ago. Also, accounting firms have grown far more cautious, cowed by the collapse of auditor Arthur Andersen in 2002 after massive fraud at its client Enron.
The upshot is that both managers and auditors are now more likely to err on the side of conservative accounting. |
