Nortel Networks Earnings Preview

Nortel Networks Corp.'s (NT) second quarter results out this Friday won't be strong enough to lift the stock higher despite its attractive current valuation, says Gus Papageorgiou Scotia Capital analyst. 

But patient investors needn't fret, he adds. Nortel's second half is expected to be a good one, offering up a prime opportunity to jump into the stock.

In a note to clients, Mr. Papageorgiou said:

Generally we expect the results this week to be more or less in line and not act as a major catalyst for the shares.

He maintained his "sector perform" rating and one-year target of C$11.50 per share.

The analyst forecasts second quarter earnings per share of $0.02 compared with a $0.04 loss estimated by the consensus. He estimates revenues of $2.517-million versus the Street's $2.498-million.   

Mr. Papageorgiou told clients that in the second half of the year, Nortel's enterprise and optical groups are expected to post more impressive numbers. For the third quarter, Nortel is expected to show "significant sequential improvement," he said, with earnings per share and revenues earmarked at $0.20 and $2.791-million. 

As we move into the year the company's operating improvements and EPS momentum should become more apparent, and we believe that will be the more appropriate time to build a position.

In the mean time we believe investors are better served by companies such as Nokia Corp. (NOK), which are also trading at a low multiple, have a much sounder financial position and offer decent upside potential.

If you are bent on keeping your investment dollars in Canada, the analyst flagged Research in Motion Ltd. (RIMM) as his short-term preference.