Genovese increased his EPS estimates on the company for 2007 to 72 cents a share from 35 cents, and for 2008 to $1.75 a share from$1.63; for 2006, he now sees a loss of 48 cents a share, rather than a loss of 50 cents.
Genovese also says that he “strongly disagrees” with the Street consensus 2008 revenue estimate of “only $11.98 billiono 2% growth,” and instead is forecasting $12.5 billion, or 6.6% growth. Genovese writes that he is “at a loss to explain why the consensus is so low.”
Genovese notes that the company plans to cut costs by $1.5 billion by the end of 2008:
As [gross margins] and earnings improve, we expect the valuation to move towards our target of 20x 2008 EPS or $35 per share. We expect revenue growth rate acceleration and continued margin expansion beyond 2008.
The analyst notes that the estimate increases are despite the fact that he is assuming a proposed settlement of shareholder litigation is adopted, increasing the share count by about 14%.
Nortel shares Friday were up 94 cents at $27.02.
NT 1-yr chart