NORTEL: The day after the bomb fell
By Ottawa Business Journal Staff
Thu, Apr 29, 2004 8:00 AM EST
While investors panic and the obvious comparisons are made with the Enron scandal, market watchers point out that Nortel Networks is still a company with real products generating real revenues.
News of the firing of CEO Frank Dunn, the delay of first-quarter results and the admission that last year's profit will be cut in half hammered more than just Nortel's stock price.
The loonie hit its lowest level in almost eight months Wednesday, finishing the day at 72.75 US cents, down from 74.06 US cents, at Tuesday's close.
Market watchers blamed the loonie's fall on the Nortel news, as well as on comments from Chinese Premier Wen Jiabao that suggested China might reduce its consumption of foreign commodities.
Nortel helped drive the TSX down 300 points on the day, or 3.5 per cent, to 8,234.85.
The Brampton-based telecom equipment maker itself plummeted more than 30 per cent on the day in Toronto to close at $5.26.
Most market watchers agree that, at present, Nortel is in solid shape. Its wireless business is strong and only expected to get stronger. When it reported fourth-quarter results in January it soared past analysts' estimates with revenues of US$2.83 billion. The market forecast was for US$2.44 billion.
The good news is that, at this point, Nortel does not believe its restatements will change its previously reported revenue figures.
Nonetheless, the company's delay in making its regulatory filings puts it at risk of defaulting on its debt covenants. The latest shakeup at the company has also provided fresh ammunition for the U.S. law firms salivating over the opportunity to mount investor lawsuits. Chief among those firms is Scott and Scott of Connecticut, which was quick to tweak its actions against Nortel on Wednesday in the wake of the latest developments.
Some market watchers on Wednesday even went so far as to speculate that the situation may make Nortel vulnerable to a foreign takeover.
Most market watchers, however, have mixed views on the company's future.
On Wednesday, Goldman Sachs analyst Brantley Thompson maintained his "outperform" rating on Nortel stock, citing the fact that revenue and cash are not expected to be affected by the restatements. He believes new CEO William Owens will provide a new stability to the company.
"The management changes place the uncertainty surrounding the leadership behind us," he said in a research note.
At Merrill Lynch, the response was more wary. The brokerage put its rating on Nortel stock under review, citing "substantial and material uncertainty" over the company's finances as well as "considerable management turmoil."
At Blaylock & Partners, analyst Gabriel Lowy maintained his "buy" rating on Nortel's stock on the grounds that its revenues are growing and that it has substantial cash reserves (about US$3.6 billion).
However, aside from revenue growth and a strong cash position, he warned that "there is no reason to have confidence in the rest of Nortel's reported profit and loss statement."
Other analysts were quick to respond to the knee jerk reaction of the market, which sent the stocks of many telecom companies lower on Wednesday.
Shawn Campbell, of Chicago-based Campbell Asset Management, said the news will help correct many telecom stocks that have "gotten ahead of themselves" after recent indications that demand for telecom gear is picking up.
At Bernstein Research, analyst Paul Sagawa said the situation does make investors question the true worth of telecom stocks and the outlook for the sector. However, he remains optimistic that the sector as a whole is poised for broad-based profitability.
By Ottawa Business Journal Staff
Thu, Apr 29, 2004 8:00 AM EST
While investors panic and the obvious comparisons are made with the Enron scandal, market watchers point out that Nortel Networks is still a company with real products generating real revenues.
News of the firing of CEO Frank Dunn, the delay of first-quarter results and the admission that last year's profit will be cut in half hammered more than just Nortel's stock price.
The loonie hit its lowest level in almost eight months Wednesday, finishing the day at 72.75 US cents, down from 74.06 US cents, at Tuesday's close.
Market watchers blamed the loonie's fall on the Nortel news, as well as on comments from Chinese Premier Wen Jiabao that suggested China might reduce its consumption of foreign commodities.
Nortel helped drive the TSX down 300 points on the day, or 3.5 per cent, to 8,234.85.
The Brampton-based telecom equipment maker itself plummeted more than 30 per cent on the day in Toronto to close at $5.26.
Most market watchers agree that, at present, Nortel is in solid shape. Its wireless business is strong and only expected to get stronger. When it reported fourth-quarter results in January it soared past analysts' estimates with revenues of US$2.83 billion. The market forecast was for US$2.44 billion.
The good news is that, at this point, Nortel does not believe its restatements will change its previously reported revenue figures.
Nonetheless, the company's delay in making its regulatory filings puts it at risk of defaulting on its debt covenants. The latest shakeup at the company has also provided fresh ammunition for the U.S. law firms salivating over the opportunity to mount investor lawsuits. Chief among those firms is Scott and Scott of Connecticut, which was quick to tweak its actions against Nortel on Wednesday in the wake of the latest developments.
Some market watchers on Wednesday even went so far as to speculate that the situation may make Nortel vulnerable to a foreign takeover.
Most market watchers, however, have mixed views on the company's future.
On Wednesday, Goldman Sachs analyst Brantley Thompson maintained his "outperform" rating on Nortel stock, citing the fact that revenue and cash are not expected to be affected by the restatements. He believes new CEO William Owens will provide a new stability to the company.
"The management changes place the uncertainty surrounding the leadership behind us," he said in a research note.
At Merrill Lynch, the response was more wary. The brokerage put its rating on Nortel stock under review, citing "substantial and material uncertainty" over the company's finances as well as "considerable management turmoil."
At Blaylock & Partners, analyst Gabriel Lowy maintained his "buy" rating on Nortel's stock on the grounds that its revenues are growing and that it has substantial cash reserves (about US$3.6 billion).
However, aside from revenue growth and a strong cash position, he warned that "there is no reason to have confidence in the rest of Nortel's reported profit and loss statement."
Other analysts were quick to respond to the knee jerk reaction of the market, which sent the stocks of many telecom companies lower on Wednesday.
Shawn Campbell, of Chicago-based Campbell Asset Management, said the news will help correct many telecom stocks that have "gotten ahead of themselves" after recent indications that demand for telecom gear is picking up.
At Bernstein Research, analyst Paul Sagawa said the situation does make investors question the true worth of telecom stocks and the outlook for the sector. However, he remains optimistic that the sector as a whole is poised for broad-based profitability.
