Nortel: Citi Upgrades on 'Attractive' Restructuring Story

| About: Nortel Networks (NT)

Citigroup’s Michael Genovese today upgraded Nortel (NT) to Buy from Hold, asserting that the stock is “an attractive restructuring and valuation story.” He also raised his price target on the stock to $32 from $25.

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

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