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Analysts tout Yahoo, pull back from Nortel

Analysts emphasize their bullish stance on the portal giant, while others rein in optimism for Nortel Networks as the telecommunications sector heads for a slowdown.

Analysts emphasized their bullish stance on Yahoo today, while others reined in optimism for Nortel Networks as the telecommunications sector heads for a slowdown.

Three financial institutions drafted favorable reports this morning on Yahoo, whose shares took a beating yesterday after Priceline.com warned it will miss third-quarter sales estimates.

The Priceline slowdown, blamed on stagnant sales of airline tickets, raised investor concerns that Yahoo and other e-commerce giants would have difficulty meeting Wall Street's revenue projections for upcoming quarters. Yahoo stock sank more than 12 percent yesterday, closing at $90.38--the stock's biggest one-day percentage loss in five months.

Adding to the pressure on Yahoo's stock price was an ominous announcement earlier this month by Amazon.com. The largest Web retailer ended a three-year marketing relationship with Yahoo in the United States, then announced it would renew its marketing partnership with AOL, the world's largest Internet portal.

Though the two companies have different business models, AOL and Yahoo are in a fierce battle for "eyeballs," or the number people who browse and shop at their sites.

But analysts discounted Yahoo's recent stock slide and the AOL rivalry this morning, emphasizing their long-term confidence in Santa Clara, Calif.-based Yahoo. The portal is lauded for the length of time the typical user remains on its sites and the enviable loyalty of its users.

Analyst Carolyn Trabuco at First Union Securities reiterated her "strong buy" rating and 12-month price target of $150. Analyst Safa Rashtchy at U.S. Bancorp Piper Jaffray reiterated a "strong buy" rating and a target price of $185.00 per share.

Henry Blodget, an analyst at Merrill Lynch, reiterated today his near-term and long-term "buy" ratings on Yahoo. He noted in a research report that he believes the company is on track to meet or exceed third-quarter revenue estimates of $280 million by as much as $10 million.

"The shares are still expensive and if sentiment continues to worsen it will not bode well for the stock," Blodget wrote. "However, we continue to view Yahoo as a core holding, particularly for the long-term investor. We think pressure on the stock may be relieved following third-quarter results."

In morning trading today, the stock rebounded to $96.31, up nearly 7 percent from yesterday's closing price.

Morning trading was also favorable for Nortel Networks, which bounced up to $62.25 in midday trading today, up more than 4 percent from yesterday's closing price.

The Canadian company, North America's No. 2 phone equipment maker, announced yesterday two contracts worth $525 million to build wireless networks for 17 million users in China and Taiwan.

Several analysts issued reports on the company in the wake of the news, but the brokers seemed to disagree on the fundamental direction that the stock would take in the short term.

Analyst Benoit Chotard at National Bank Financial maintained his "focus buy" rating on the Canadian company and his 12-month target price of $180 (Canadian) per share. Analyst Gus Papageorgiou at Scotia Capital reinstated his "strong buy" rating and a more modest 12-month target price of $136.00 (Canadian) per share.

But many companies that manufacture telephony, data and wireless equipment for the Internet, including Nortel and Cisco Systems, have fallen since the beginning of September, primarily because of investor concerns that telecommunications companies will cut capital spending.

Analyst Paul Sagawa at Sanford C. Bernstein & Co. downgraded Nortel to "market perform" from "outperform," based on worries that the company's financial performance would begin to sag sometime next year.

He said he was concerned that the company couldn't sustain its revenue growth expectations for the 2001 fiscal year, which were expected to be at least 40 percent greater than revenue for the 2000 fiscal year. Sagawa predicted more moderate growth of about 30 percent for fiscal year 2001.

He was also fearful that the company, which is trading at a valuation of more than 60 times expected 2001 earnings per share, is due for a correction.

"We believe (Nortel) will be unable to sustain this extraordinary performance in an environment of decelerating carrier spending," Sagawa wrote in a research report this morning. Its "stronghold optical business is unlikely to be spared from sharply reduced spending by the new build carriers that have fueled its two-year rise from the ashes. We do not believe that (Nortel) has sufficient visibility into the ability of their customers to live up to heightened spending expectations, resulting in overly aggressive expectations and overcapacity."

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