Merrill Lynch: Nortel's Share Price Based On 'Risky Assumption'

Nortel Networks Corp. (NT) shares dipped on Thursday and Friday after the company said it would again restate its financial results.

While some investors are disappointed that this ugly saga has not yet concluded and sentiment may suffer as a result, the disclosed errors for revenue recognition and retirement costs are in the range of US$10-million, according to Merrill Lynch analyst Vivek Arya.

He thinks this number is relatively minor and maintained a “neutral” rating on Nortel shares.

“We believe that Nortel has the right restructuring plan and a capable team to implement it, but thus far we have not seen any tangible progress,” Mr. Arya said in a research note.

He also has concerns about dilution from potential acquisitions and the possibility an additional debt or equity offering.

However, an exit from the Global System for Mobile Communications [GSM] market through a sale of that division, would be considered a positive move.

Mr. Arya feels Nortel’s current share price reflects the company’s expected progress, “which we think is a risky assumption given the lack of tangible progress to-date and the increasingly competitive environment,” he said.

NT 1-yr chart:

Comments

[PeterB:]

Why would it be good for Nokia to dispose of their GSM division?. GSM is dominant in Europe and much of Asia, used by the huge ATT (ex Cingular) network and T-Mobile in the USA and Canada. They would be cutting themsleves off from a large part of the total market.

2007 Mar 08 10:23 PM