TD Maintains Nortel as a Buy, JP Morgan Upgrades

TD’s Umiastowski: “Nortel is Making a Comeback”

One thing about analysts who cover Nortel (NT); they like to travel in packs.

Hot on the heels of Nortel’s annual investor day, the analyst reports continue to flow. One from TD Securities’ Chris Umiastowski proclaims that “Nortel is Making a Comeback.” He continues to call Nortel an “action list buy” with a target price of $13.

“We walked away with more confidence in the management team, and we heard a lot of detailed information that backs up management’s plan to dramatically boost operating margin,” he said in a research report.

Umiastowski provides a long list of reasons why he’s so optimistic about Nortel, highlighted by his belief that Nortel is going through a “massive cultural shift.”

“Aside from all of the details and plans presented by the company, we think that the most important takeaway is the overwhelming cultural change driven by Nortel’s new management team. We have never before seen Nortel possess such strong focus on profitable execution of its business plan, which we attribute to the GE culture brought in by Zafirovski and other members of the senior executive team.”

Not to criticize Umiastowski or the other analysts who are now buoyed by Nortel’s prospects but it is fascinating to see the dramatic difference in sentiment compared with three months ago when Nortel shares were trading below $6 and analysts were scrambling to get off the bandwagon.

Maybe Nortel’s restructuring plan is starting to slowly bear fruit after a long, long haul. Perhaps more analysts and investors are finally putting some faith in Nortel, what it’s doing and where it’s heading - something that had mostly evaporated for the longest time.

While there appears to be reason for optimism, anyone who has watched Nortel carefully over the past seven years since the telecom boom went bust knows that a pragmatic approach is not to get too carried away when times are good, and not too despondent when times are tough.

Nortel has the amazing ability to get you all aflutter AND break your heart - as if you didn’t know that already.

Note: While Umiastowski is bullish, RBC Capital Markets’ Mark Sue is cautious, maintaining his “sector perform” rating and $8 target price.

JP Morgan Upgrades NT

In the wake of the June 11 news - Nortel focused on LTE and dropping Wi-Max, and management confirming the 2008 financial outlook - you knew it was only a matter of time before the analyst upgrades started to emerge.

JP Morgan appears to be first out of the game as Ehud Gelblum upgraded Nortel to “overweight” from “neutral,” suggesting that the company will have stronger operating margins and better sales during the second half of the year. The upgrade is particularly noteworthy given JP Morgan has rated Nortel as a “neutral” for the past four years.

Gelblum said Nortel should have operating margins of 10% over the next one to two years due to lower expenses and its Wi-Max partnership with Alvarion (ALVR), which was unveiled yesterday. He also said Nortel’s Metro Ethernet unit will see better profitability as sales of a new networking product climbs during Q3 and Q4.

Comments

[PrudentMan]

TD is Toronto Dominion Bank. Is that who raised the rating? Clear writing and communication would be nice.