Nortel News: CDMA= Betamax?, Apple Makes WiMax Rescue Attempt, Stock News, Sell-Side Analysis

CDMA= Betamax?

You have to love a Toronto Star story today that describes Telus’ (TU) contemplation of moving from CDMA to GSM as “the wireless equivalent of moving from Betamax to VHS”.

I’ll give the reporter, Chris Sorensen, points for creativity but it’s a bit of a stretch given Betamax lasted about a decade before pretty much disappearing while CDMA is still alive and kicking, although it’s losing a lot of ground to GSM. If Telus does decide to pull the trigger on GSM, I wonder how long it will take Bell Canada to follow suit?

Apple To Save WiMax?

According to ValleyWag, Apple (AAPL) could launch a new ultra-portable notebook at Macworld that will include WiMax. In fact, Apple may roll out WiMax to all its MacBooks.

Would that be enough to save or jump-start WiMax? It would help but WiMax needs a lot more support to really gain momentum.

Stock News

Nortel (NT) stock has dropped from $14.78 to a 52-week low of $12.09 ($1.20 taking into account the 10:1 stock consolidation) before starting trading today at $12.51. There has also been heavy trading volume.

Is the decline related to concerns about the health of the North American economy? Are there signs that carriers are changing and/or pulling back on spending? Or is it that people have grown impatient with Nortel’s turnaround strategy?

Analyst Reports

Amid the stock’s decline, it has been interesting to see two diametrically opposed analyst reports come out last week: Scotia Capital’s Gus Papageorgiou is ultra-bullish with a $30 target price, while RBC Capital’s Mark Sue is far more cautious and dropped his target price to $16 from $18.

Scotia Capital analyst Gus Papageorgiou clearly sees something many of his peers don’t as he has anointed Nortel as his “Top Pick for 2008″ with a $30 price target.

In a report titled “Valuation and Business Momentum are on your side Buy the Stock!’, Papageorgiou explains that his bullishness is based on the fact that

Nortel has highest gross margins in the industry and EBIT margins have been up almost every quarter for the past seven quarters.

In addition the company is on target to reach its US$1.5B in cost reductions or margin expansion with several easy cost reduction initiatives set to kick in over the next few months. Business momentum also improving: With a strong position in 40G Optical, PBT, Unified Communications in the enterprise, a cost reduced GSM portfolio, a leading EVDO portfolio and potential in Wi-MAX we believe Nortel’s business prospects have not been this promising for some time.

Valuation is on your side: Despite the progress the company has made in the last year its shares continue to slide. We believe the share movement is inconsistent with the operating improvements and the company’s prospects. Nortel is now trading at a Price to Sales (next 12-month estimate) of less than 0.6x. Based on our EPS estimates it is trading at a P/E of 7.5x and an EV/EBITDA of 5.6xs. Nortel has not traded at these levels since 2002 when there were concerns over its solvency. At these levels any signs of stable operations and decent business prospects can, we believe, have a very positive impact on the share price.

The risk/return proposition in our opinion is squarely in favour of investors at this stage and we would encourage maintaining or developing an overweight position in the shares. Nortel is our top technology pick for 2008.

The timing of Papageorgiou’s report is far from perfect given the stock has lost about $2 to $12.50 last week amid heavy trading. According to Thomson/First Call, the average target price among analysts is $21.63.

While Gus Papageorgiou is gung ho on Nortel’s prospects, RBC analyst Mark Sue is far more cautious.

In a report, he said Nortel is “appropriate for long-term minded investors” due to a competitive landscape, industry consolidation and a weak balance sheet.

In the short-term, he has a target price of $16 with a “sector perform” rating.