OTTAWA – Shares of Nortel Networks Corp. sank to a new 52-week low on Monday as the world's largest supplier of telecoms equipment was hammered by an analyst's cut to estimates and by selling by worried investors as they braced for earnings warnings from technology companies.
Nortel stock touched a nadir of C$17.93 ($1=$1.52 Canadian) on the Toronto Stock Exchange, slipping well below the previous 52-week low of C$18.99, before creeping back to end the session at $18.50. In New York, shares dropped as far as $11.83, breaking through the previous low of $12.48, before closing at $12.04.
The once high-flying stock is now 86 percent off its year high and its shares on the New York Stock Exchange have underperformed the Standard & Poor's 500 index by more than 77 percent over the past year.
Beleaguered shares of Brampton, Ontario-based Nortel have been humbled in recent weeks by a string of analyst downgrades amid signs that weak customer demand will not soon strengthen.
"Bottom line, there's not really been anything that could even be closely construed as good news coming out of the company in the last four months," said Paul Sagawa, analyst at Sanford Bernstein.
Nortel stock has not yet hit bottom, Sagawa said, suggesting the shares could fall as low as $9-$10.
"It sure doesn't feel like there's going to be any good news for the second half of the year -- talking to the carriers, capex (capital expenditure) is all down, Europe looks like it's weakening considerably," he said. "I'm not optimistic."
Nortel, which recorded a deep first-quarter loss and said it would cut 20,000 jobs, or 21 percent of its staff, has not provided any forecasts for its upcoming earnings.
UBS Warburg cut its profit and stock price estimates for Nortel on Monday, citing weak demand from its long-haul network customers, some aging products, and growing competition in the market for metro fiber-optic equipment. It also suggested further job and product cuts could be coming.
In a research note, UBS cut its 2001 earnings estimate to a loss of 17 cents a share from a profit of 10 cents and cut its 2002 target to 25 cents a share from 40 cents. It also trimmed its stock target to $15 from $18.
Sales in the second and third quarters will likely fall below first-quarter revenues, said analysts Nikos Theodosopoulos and Michael Urlocker.
Nortel, which recorded a first quarter loss of $385 million, or 12 cents per share, on revenues of $6.18 billion, will report its second quarter results on July 19.
Analysts polled by First Call/Thomson Financial expect Nortel to lose 5 cents per share in the second quarter, based on 39 brokers' estimates ranging between a 5-cent profit and a 20-cent loss.
For the third quarter, 35 brokers forecast a profit of 3 cents per share, the average estimate from numbers ranging between a profit of 18 cents and a loss of 7 cents per share.
"Given our new outlook of Nortel not turning profitable until the fourth quarter of 2001, we would not be surprised if Nortel further reduced headcount beyond the planned 20,000 already announced," UBS analysts wrote in the report.
"We also expect any product category within the Other category (other than optical components) to be a candidate for discontinuation."
Nortel's "other" category, which includes revenues ranging from professional services to access technology, had gross margins of 17.5 percent in the first quarter, excluding optical components, the UBS note said. In contrast, the company average is 30.1 percent.
Nortel told Reuters earlier this month it had quit the digital subscriber line access business, which supports heavy traffic over copper phone lines. It purchased the technology in a $778 million acquisition of Promatory Communications last year.