Notter notes that the recent slide in Nortel shares reflects mixed EPS results earlier this month, and a new $1 billion convertible debt offering which “created arb pressure” on the stock. He notes that the stock trades at just 1.1x enterprise value/’08 sales and 15.6x projected 2008 EPs. “Sentiment is fairly negative - most of our competitors have Hold ratings on the shares while investors have been fairly pessimistic of late,” he writes.
But Notter still thinks the restructuring story at Nortel will play out. “We continue to believe that the company, over time, has a strong opportunity to deliver better than expected operating margin performance,” he wrote.
Notter maintains a Buy rating and $33 price target on the stock.
Late last week, by the way, Standard & Poor’s equity analyst Ari Bensinger upgraded his rating on the stock to Hold from Sell on a valuation basis:
We continue to believe that meaningful near-term revenue growth will be difficult for NT to achieve, given heightening industry competition and increased buyers’ power after carrier competition. Nevertheless, we expect NT to post significant margin improvement in ‘07, reflecting lower operating expenses from aggressive restructuring initiatives.
Nortel yesterday was up 41 cents at $24.56.