Not Helping: Investors Give Up on Nortel
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Turbulence in the credit markets, the potential for a slowing economy overseas and additional scrutiny on carrier spending may make it difficult for Nortel Networks Corp. (NT) to execute its turnaround plans. This has prompted a downgrade from “sector perform” to “underperform” from RBC Capital Markets analyst Mark Sue, who cut his price target for Nortel shares in half to $2.
He said the company’s deteriorating balance sheet isn’t helping, with $3.1-billion in cash but $4.5-billion of debt. Meanwhile, Nortel has been free cash flow negative so far this year and in seven of the last ten quarters.
As it burns through an expected $500-million in the third quarter, Nortel is trying to sell assets such as its Metro Ethernet business. But Mr. Sue said the timing couldn’t be worse given the difficult situation most of the potential bidders find themselves in these days.
“Public equity investors have mostly given up on the company,” the analyst told clients, noting that its $1-billion market cap is a far cry from its $300-billion-plus peak.
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