UBS and RBC Analysts: Nortel's Road to Recovery Will Be Rocky

As Nortel Networks Corp. (NT) recovers from a hangover induced by slashing thousands of jobs and a C$1.1-billion tax write-down, analysts are saying the road to recovery will be rocky.

UBS equity analyst Nikos Theodosopoulos lowered his price target on Nortel stock from $15 to $11, citing the company's broad based strategy which makes it harder for it to regain its momentum.

Mr. Theodosopoulos, who continues to maintain a "neutral" rating on the stock, said:

We continue to believe Nortel needs to increasingly focus on fewer areas where it can gain a competitive edge and meaningful scale.

Our preference is to see an increased focus in Metro Ethernet and Enterprise, at the expense of 4G wireless where we believe Nortel will struggle. We continue to remain on the sidelines.

Nortel's challenged position in the telecommunications hardware industry underscores RBC Capital Markets analyst Mark Sue rating downgrade on the company's stock. Mr. Sue now maintains an "underperform" on the stock, down from an earlier "sector perform" rating.

Mr Sue, who still holds a $10 price target on the stock said:

Nortel's revamped management team is doing the best that they can in our assessment.

Unfortunately, the prior management team at Nortel left the company with a very damaged balance sheet. And with limited resources and little currency to afford a major strategic rethink, the company may have to resort to a year of basic blocking and tackling. During this period, overall telecom equipment demand may moderate and competition may only increase further impacting the share's multiple.