A Canadian boutique firm called Paradigm Capital Inc. issued a rather extremely bold call on Nortel Networks Inc. (NYSE: NT) this morning. Paradigm noted how unusually low the valuation is on the stock with a $4 Billion market cap after a near-70% drop over the last year, which he calls low compared to its $11 Billion in revenues. The call also noted how Nortel is about to get a $2.4 Billion global class action settlement behind it, which he believes will remove a significant overhang.
What is perhaps more gutsy than just coming out with strong comments on strengthening first quarter metrics is the actual formal rating itself. Paradigm not only issued a BUY rating, but the call is for a $23.00 price target.
We recently called Nortel one of the turnaround stocks that hasn’t turned around. That doesn’t mean it can’t turn around, but they just haven’t been able to drum up the turnaround. If Nortel can hit its forward estimates this year or next then he is right about the stock being a cheap one. But if it lives up to the same status quo and continues to disappoint then this one may stay in the dungeon.
We did put a call into Paradigm Capital and received verbal confirmation about the Buy rating and $23.00 price target.
First Call has Fiscal 2008 estimates at $0.55 EPS on $11.2 Billion in revenues, and 2009 estimates are $0.92 EPS on $11.6 Billion in revenues.
When you see calls looking for a 200% gain in a turnaround stock, its hard not to notice. This call is either one of the gutsiest calls that could be made…. or one of the craziest. So far Wall Street isn’t fighting the tape as Nortel shares are down 5.5% at $7.67 right before the close.
Jon C. Ogg
June 6, 2008
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