Reverse Split Should Catalyze Nortel's Turnaround

Dec.10.06 | About: Nortel Networks (NT)

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

Nortel's Stronger Signal by Mark Veverka

Highlighted companies: Nortel Networks Corp. (NT), Alcatel-Lucent ADR (ALU)
Summary: Despite CEO Mike Zafirovski's exuberance, Nortel Networks Corp. (NT) shares have moved little in the last three years, and are down more than 25% in 2006. But the company, with a market value of $9.7b, may be reaching a turning point that's escaping Wall Street due to its Nortel Chart 1 10 12 06tendency to underdetail its plans. Zafirovski's moves: 1) Settling $2b of litigation, 2) Recruiting 7 new direct reports and reducing management layers, 3) Restructuring pensions, 4) Renegotiating contracts with manufacturers on better terms -- moves Barron's terms "not glamorous but essential." Last week's reverse 10-1 stock split puts shares at $22.30, bringing them back under the radar of institutional funds. Operating margins, now at 1%, should hit 13% within five years. Also boosting shares this week was the closing of its radio-access UMTS branch sale to Alcatel-Lucent (ALU) for $320m -- analysts say the move will boost margins and earnings in 2007. Charter Equity analyst Ed Snyder says earnings next year could reach $2, and shares $30. Barron's: Bigger gains may follow.
Related: Ready To Wait For Nortel's Turnaround, Nortel May Sell Off Tomorrow On Reverse Split, Nortel May Never Recover Its Old Glory, Nortel Shareholders, Fasten Your Seatbelts, Nortel Q3 2006 Earnings Call Transcript, Jim Cramer's Take on NT