Two Holds and a Buy: Three Analysts Maintain Nortel Ratings

Gus Papageorgiou, who has been among the most bullish analysts on Nortel (NT), believes the first-quarter was “important” because it “was the first quarter in quite some time where management was able to meet or exceed expectations while maintaining its previously established guidance.”

Papageorgiou didn’t let his enthusiasm get him completely carried away as he maintained his “sector perform” rating and a target price of $11.50.

Lehman Brothers analyst Inder Singh is maintaining his “equal weight” rating on Nortel but reduced his target price to $17.00 to $15.50.

In a research report, Singh said Nortel’s Q1 revenues and EPS were ahead of the estimates and the consensus. That said, he reduced his EPS estimates for 2008 and 2009 to $1.03 to $0.92 and from $1.33 to $1.23, respectively.

Buoyed by year-over-year improvements in profitability in the wake of first-quarter results, Merriman analyst Tim Savageaux has maintained his “buy” rating on Nortel.

In a research note, Savageaux said:

We believe Nortel has done more than enough both over the past two years and in a surprisingly strong 1Q to merit a revenue multiple above one and P/Es in double digits. Fears of overexposure to CDMA markets for profitability proved unfounded, with solid operating profitability reported both with and without a large LG-Nortel contract.

Also, for the first time, the company has shown strong evidence of SG&A expense reductions and associated operating leverage. The company reiterated growth (low single digit) and profitability (op margin up 300 basis points Y/Y) guidance for the year and we continue to find the shares dramatically undervalued.