Analyst James Parmalee says he cut estimates due to ongoing weakness in the telecommunications equipment sector and the lack of visibility on end-demand improvement. He notes that Moody's downgraded Nortel's senior unsecured paper to a notch above junk status. He thinks the company will likely be in conformance with bank line debt covenants through the first quarter, but believes there's a meaningful risk to compliance in subsequent quarters.
Parmalee says the recovery rate of the sector will likely be extremely gradual. He cautions investors to assume a 12-18 month time horizon. He widened his $0.24 2002 loss estimate to a $0.31 loss, and cut the $0.20 2003 earnings per share (EPS) estimate to $0.15 EPS. Parmalee has a $10 12-18 month target. He rates Nortel as a buy.