Can Alcatel-Lucent Get One Right? (ALU)

Alcatel-Lucent (NYSE: ALU) will report earnings tomorrow morning.  By now we have seen almost every large technology company either say cautious things going forward, or we’ve seen their stocks get hammered over fears of a slowdown.  This company gave three earnings warnings last year after Alcatel acquired Lucent and it has been losing business.  The stock is down well over 50%.  We even named Patricia Russo as one of our CEO’s to go for 2008.

First Call has estimates at $0.14 EPS on some $7.3 Billion in revenues.  Estimates for the coming March quarter are $0.05 EPS on $5.6 Billion in revenues, and fiscal Dec-2008 targets are $0.56 EPS on almost $25 Billion in revenues.  The stock is cheaper than its peers on a forward P/E basis but that shouldn’t be hard to figure out why.

Analysts are still quite negative on Alcatel-Lucent, although the average price target is still north of $9.00 and that would imply close to a 50% gain from here.  The 52-week trading range is $5.54 to $14.57, so the $6.17 stock price isn’t exactly telling a great story.  While it has traded under $6.00, the current price has been used for support after a 6-month straight meltdown.  Because of such a low share price, options are of no use as a predicting tool.

Last night, the WSJ ran a note that showed T.Rowe Price being optimistic, although they might have a bit more patience and a longer horizon than most.

There have been virtually no key sentiment shifts from Wall Street in quite some time.  The good news is that the company actually beat estimates before, but that is after they lowered targets sharply.  If the company meets expectations tomorrow it will represent a 30% drop in earnings year over year on an EPS basis.  As of last look, this one has some 33.89 million shares carried in the short interest.

Jon C. Ogg
February 7, 2008