Nortel Update: S&P Improves Outlook, Nortel Maintains Expectations and Goes Green

Not only did Nortel Networks (NT) sell $500-million of bonds earlier this week, but Standard & Poor’s also gave the company some good news when it affirmed Nortel’s “B-minus” credit rating while changing its outlook to “positive” from “stable.”

“The revised outlook primarily reflects the steady improvement in profitability in the past several quarters despite difficult market conditions,” S&P credit analyst Madhav Hari said. “We expect this operating momentum to continue in the near term, mostly driven by the net benefit derived from the company’s fiscal 2008 and previous years’ business transformation initiatives.”

While improving the outlook to "positive," S&P said Nortel’s exposure to legacy products remains “significant and will likely pressure near-term revenue growth.”

But S&P also said “the company’s portfolio of growth products and services has shown good traction in recent quarters thereby mitigating the risk of large revenue losses. Furthermore, cash balances of more than US$3.2 billion have remained stable and should allow the company to execute its turnaround strategy in addition to providing healthy credit support.

Nortel Reaffirms Outlook

Just in case you were wondering, Nortel still expects revenue to grow in the low single digits this year, while gross margins will be about 43%. Analysts expect Nortel to have sales of $11.2-billion compared with $10.95-billion in 2007.

Nortel’s Embrace of Green

It looks like Nortel has embraced the environmental movement as a way to carve out a competitive edge.

In a new advertising campaign, Nortel is stressing how its technology consumes less energy than its competitors, particularly Cisco (CSCO). The cornerstone of Nortel’s strategic initiative is its energy efficiency calculator that provides a sense of how much energy you could save using Nortel gear.

Out of the gate, Nortel products cost up to 50% less than their Cisco counterparts. Coupled with significant energy savings, Nortel products can effectively pay for themselves. How’s that for ROI?

Being the social media savvy company that it is, Nortel even put together a YouTube video.

Comments

[Nasir Khan]

Being a nortel investor this gives me some heart. Over the past two years nortel's stock has significantly underperformed Cisco, Juniper and even Alcatel lucent and Tellab. Its forward PE ratio is 8.5 again way below its peers. The big question is can it snatch some market share from Cisco and juniper due to product pricing and energy savings. Also good news that they are maintaining a revenue growth forecast while many others are showing flat growth or declines in 2008. I keep my fingers crossed !