| Nortel: Knocking on Heaven's
Door?
 A
couple of years ago, investors saw no risk in owning Nortel at $80. Could
it be, that by delaying purchase now that the shares have collapsed to
around $2, they are repeating history?
Know when to hold'em…..
Certainly a purchase of Nortel shares
is set firmly in the speculative realm. The promise of increased capital
spending in the tech area has yet to define itself. Class action lawsuits
naming the company are virtually impossible to quantify. The damage done
to a once venerable name will take years to reverse itself. That having
been said, buyers have been picking up the embattled name. And made good
money in the bargain.
The shares bit at a 52-week low of
43 cents in October 2002. Since then the shares have risen five-fold to
2.00-- up a nifty 10 percent in the last week alone.
The best thing that happened to Nortel
over the last year was Enron and the other names we have heard ad nauseam.
Bumped from page one, Nortel has been able to restructure its business,
improve its balance sheet and focus on bringing the company back to profitability.
Nortel CFO Doug Beatty has given guidance that the behemoth should break-even
or even be profitable by the second quarter of 2003.
Smaller may well be better.
Nortel will consolidate its shares-likely
5 or 10 for one at the present price-- in the first quarter of 2003, ostensibly
to maintain its NYSE listing. There are currently nearly 4 billion shares
outstanding evidencing a market cap of $7.5 billion. Trailing twelve month
trailing revenues as at September 2002 were just under $12 billion-half
that of the previous trailing twelve months.
The employee count will soon be 35,000,
down 60 percent from its peak. First Call's poll of 35 analysts show a
mean loss of 38 cents for fiscal 2002 (as at December 31st) and a loss
of 12 cents for fiscal 2003. The company expects to have $3 billion in
cash by the end of fiscal 2002.
Nortel has also cancelled a $1.2
billion credit facility as excess to its needs. The company has a $750
million credit facility that expires in 2005, which it currently has no
plans to draw on. Financing talks with banks and Export Development Canada
for secured bond facilities and other guarantees are expected to conclude-hopefully
positively-- in Q1 2003.
 No
surprise here….
In typical style, Wall Street has
had Nortel as a consensus hold right through its run since last October
from 43 cents to $2.00. While the shares still represent a speculation
at these levels, the fundamentals and corporate initiatives show a keen
desire to restore the company to at least a modicum of respect among investors.
The first quarter of 2003 will be critical to the continuation of the improvement
and will be predicated on the perception that Nortel's customers are beginning
to spend on telecom infrastructure again. As the old adage goes, all you
can lose is $2.00 a share--hell of a lot better odds than $80.00 a share.
Nortel has pared itself down to four
core businesses from the dog's breakfast of being all products to all customers.
It is now divided into Wireless, Wireline, Optical and Enterprise Networks.
Not only is the company easier to analyze as a result, it has structured
itself with inter-related divisions that will maximize the opportunities
within its current and future client base. The company believes that not
only will this restructuring serve to re-establish it as an industry leader,
but open up new revenue streams. Let's hope so.
Breakfast of Champions or Chumps?
It's easy to wee in Nortel's Wheaties.
As a matter of fact, it has been the dominant refrain reprised since investors
replaced reason with bloodlust. Not that those burned don't have a right
to feel violated as pensions were decimated, a child's college education
cancelled and retirement just a fond memory. Is there a lesson here? Sure
there is: stuffing a portfolio with any one stock will almost always result
in the financial equivalent of reflux disease-whether a penny dreadful
or an icon such as Nortel.
The smart money, or at least those
investors with a horizon past Friday, are likely picking up a bit of the
once favored stock. A thousand shares at the peak cost 80k. A thousand
shares now cost 2k. And the company seems-only time will tell with how
much success-to be working hard to bury the past, alive.
For whom does the bell toll?
Whether the corpse finally succumbs
or investors finally hear the scratching on the coffin lid is the enigma.
Perhaps a small dollar cost averaging program might be the way to go.
If viewed as a spec, Nortel seems
at least a calculated risk. And if it has any more problems, there's always
the spectre that some big-tech will buy it.
The conclusion? A small punt in Nortel
won't ever be dull. |
