RBC Analyst: Nortel Networks Share Price Could Double by 2011

RBC Capital Markets analyst Mark Sue says Nortel Networks Corp. (NT) shares could more than double by 2011 but it needs to be perfect, says RBC Capital analyst Mark Sue.

In a note to clients, Mr. Sue said:

If things line up exactly for Nortel and the company hits the high end of its operating margin targets, Nortel can potentially generate approximately $1.50 in earnings in 2011. Applying a multiple of 12 to 13 times gets us to a potential stock price of $18 vs. yesterday's (Wednesday) close of $7.04.

However, knowing the company's past, the analyst acknowledged hitting those targets will be no easy task.

The analyst wrote:

This may be an overly optimistic case considering the operating margin recovery has been inconsistent and visibility on the top line growth rate remains limited. Furthermore, Nortel's other income/expense items remain highly variable.

He maintained his "sector perform" rating and $8 price target, telling clients he expects Nortel to report a $0.10 loss when it reports results for the quarter ended June. Consensus estimates are for a loss of $0.04.

In the latter half of the year, Nortel's results may be hindered by challenges ongoing at Sprint (S), one of its customers, Mr. Sue added.