Nortel: Analyst Price Target of Zero Irresponsible

Putting aside the performance of Nortel’s (NT) stock, I’ve been thinking recently about Mark Sue’s decision to slash his target price to zero.

In retrospect, it strikes me as an irresponsible decision because it suggests that Nortel as an operating entity is doomed with no value. As much as Nortel is troubled and has its financial and strategic challenges, Sue is making a huge assumption that can only be described as extreme.

The question is what does Sue see that others don’t. Even a bearish analyst such as National Bank’s Kris Thompson has a 50 cent target price, while the average target price - according to Thomson/First Call - is $1.10.

Maybe Sue is frustrated after having being forced to continually lower his target price, or perhaps he believes Nortel’s prospects are, indeed, bleak. You do have wonder, however, why he stands alone in his ultra-bearish approach, and why zero seemed like such a reasonable number.

Comments

[Tom Armistead:]

Why not 13 cents?

2008 Nov 24 04:24 PM

[johnny inca:]

no it doesn't you idiot it means that the entire value of NT's common equity is zero. It doesn't mean all of NT is worth zero. Good lord Mark if you are going to post something on here at least make it sensible.

2008 Nov 24 04:50 PM

[Vengak:]

Here's your explanation for the 0:

network.nationalpost.c...

Common shareholders will get absolutely nothing if events proceed as he expects...

2008 Nov 24 07:08 PM

[bigtexas:]

First of all...calling someone an "idiot" is wrong on all fronts...Mark, I do not usually agree with you but attacking you is WAY off base. Secondly, Nortel has great products and people...no matter what happens they will survive and move forward. I have lost a lot of $ on Nortel and other tech stocks, frankly I agree Mark Sue is at best irresponsible, at worst someone with an agenda...but I will not call him an idiot. We are all allowed to have an opinion. Keep it up Mark-

2008 Nov 24 09:34 PM

[Biased Yes,...:]

Thanks, Mark, for being a voice of reason. Yes, I'm a Nortel employee, and yes, I am therefore by defintion biased, but I'm also not blind and I've got a realistic and balanced view - no rose-colored glasses nor any prophesies of doom. Sure, we've got our issues - like everyone else - and sure we're weathering a big storm - like everyone else - but we've got a lot of value to bring to the world, business is rolling along, and, to paraphrase Monty Python, we're not dead yet. So don't go sticking a fork in us, instead take a look at where we've got competitive advantages today and some of the cool new stuff working its way to the light of day.

2008 Nov 24 10:41 PM

[Robert Nabloid:]

Mr. Biased, I'm not up-to-date on Nortel or it's product line. Could you please fill me in on what's coming through the product pipeline? Thanks!

As for the article. I think it's irresponsible to call out ONE analyst who puts a target of zero as being blatantly wrong because no other analyst sees the same. Just because most people think something is going to happen doesn't make it right... Perhaps you should contact the analyst in question and ask WHY it is he put the zero target on N in the first place - and ask others why they did not. He may be correct - or he may be wrong.

2008 Nov 25 12:59 AM

[johnny inca:]

i stand by my statements. Anyone who makes the claim that because Nortel's common stock goes to zero that the company is also inherently worth zero, without any other reference to their capital structure, is an idiot and should not be posting "articles" in this forum.

2008 Nov 25 07:50 AM

[exnt:]

Its not irresponsible to have a target of zero. It may be wrong, but given the circumstances, it is not irresponsible. An analyst is supposed to look at the situation and give advice to present and future shareholders and bondholders. In today's marketplace, any company with a track record like Nortel (many quarters of losses, declining revenue, layoffs, many quarters of burning cash), is a potential bankruptcy unless the government is going to bail them out.

2008 Nov 25 10:29 AM

[LeeWillcox:]

You may call it irresponsible but I call it factual! Zero is about all it's worth. After upper management takes their cut, bonus and options, there is nothing left. I've watched over 28 years and the stock went from over 1000 to less than a buck but the leaders always got their big checks. The only way Nortel will ever make any money for the stock holders is to run off the current leaders and get a whole new crew. The leaders there now have a serious case of dumbass. They seem to think that layoff after layoff will solve the problem.

2008 Nov 25 12:19 PM

[Serraphin:]

Essentially what we have here is the spiral effect. Nortel and the economy are in trouble. The Board has not met their fiduciary duties and the shareholder I'm afraid at some point will learn that bond holders get paid upon liquidationa nd not shareholders. Nortel can still be salavged and should be. But it takes more then token changes and layoffs. To date, Nortel's Board seems to be unequipped for the task. They need to look at what business they truly want Nortel to be in and luiquidate the rest. Pensions need to be addressed immediately with a reminder that an illiquid Nortel will result in ZERO pension payments. Divisions that do not specifically contribute to the core business should be closed or sold. All management structures should be flatened.

2008 Nov 25 04:10 PM

[Digit:]

Nortel has some of the most advanced Internetworking gear in the market at less cost. When it comes to Optical networks and DMS gear they beat all competitors hands down.

If I was the CEO, layer 3 routing would be included in all internetworking gear for free and innovations in media adapter and NAS technology in the consumer market would be one strategy going forward.

As per Einstein "Imagination is more valuable than knowledge."

2008 Nov 26 01:57 PM

[ABULLISHBEAR:]

I will have to agree with this article striclty because of the fact that the media has an overwhelming effect on the general public's view of corporations. Claming an absolute zero is a bit harsh and extreme as the article has described. I feel this way because there are steps being taken to fix the hemmoraghing (sp?) of cash. They are continuing to expand in new countries and are attempting to bandage the company with new management. Sure, they may very well continue to lose money but all the way to zero? Since the general public is so willing to jump on anything any analyst will write they have to be a little more careful with what is published. Not everyone can do their own quantitative or qualitative analysis, and from the sounds of it, the analyst this article is calling irresponsible did strictly quant work and didnt look at the qualitative issues at work. However, i dont know the background of the analyst in question, so if anyone has more insight on this person please post it because i am curious as to the exact reasoning they feel zero is a fair price.

2008 Nov 26 02:12 PM

[johnny inca:]

nortel just filed BK today. The stock is at 7 cents. So how irresponsible was this analyst? Sounds like the only really responsible one to me.

Jan 14 11:50 AM

[soon2beExNT:]

Hey Digit, DMS is archaic stuff. The VSE / ATCA platform is what stands a chance of saving the bacon.

Whether or not the leaders can make the financing work is another story.

They have not been instilling much confidence so far.

Mar 16 07:51 PM