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Legg Mason Buying the Nortel Story

An analyst at the firm sees value and reiterates his buy rating on the stock.

Shares of

Nortel Networks

(NT)

are priced to move higher and the company isn't getting the credit it deserves from investors, according to an optimistic Legg Mason analyst.

Timm Bechter said Monday that with earnings season approaching, this is the perfect time to buy Nortel. Bechter reiterated his buy rating on the shares with a $3.50 price target.

"If our Street-high estimate of 23 cents in pro forma EPS for 2003 is correct, and today's earnings multiples hold, we believe the stock could be valued near or over $7 per share," Bechter wrote in a research note.

Bechter sees the telecommunications-equipment company outgrowing the telecom market in the next few years. Thanks to its product portfolio, he believes Nortel will take a disproportionate share of next-generation-network capital spending, which covers any equipment that handles IP packets, including gateways, softswitches, 802.11 wireless gear and routers.

Thus, Nortel is in a good position, he said, because while the long-term capital spending growth potential of the telecom industry is about 6%, next-generation spending can grow at a faster rate.

Proof that the company's strategy is working can already be seen in its new customer wins, including

MCI

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,

Cingular

and

Cox Communications

(COX)

, among others, Bechter said.

Additionally, Bechter feels other analysts have underestimated the company's expected bottom line over the next few quarters. "As estimates are revised upward, the company's share price will appreciate as earnings estimates increase and it is rewarded a P/E multiple in line with comparable companies," he said.

Shares of Nortel were climbing 4 cents to $2.77 in midday

New York Stock Exchange

trading.