Alcatel-Lucent S.A. (NYSE: ALU) largely missed out on the recovery rally on Wednesday. The culprit may be that Bank of America Merrill Lynch reinstated coverage with a Neutral rating. The €2.40 price target effectively left little upside as well. Merrill Lynch was positive near-term, but warned that 2015 expectations for margin and revenue were too high.

The Merrill Lynch team feels that the SHIFT turnaround plan appears on track. Still, the elevated revenue uncertainty from a slowing U.S. capital spending story and other issued drove the firm’s 2015 expected earnings before interest and taxes would be about 18% below consensus estimates.

The Neutral rating is based on Alcatel-Lucent shares underperforming year to date and based on a 13.5-times 2015 estimates earnings. The only real bright news here is that the firm thinks investors should look to potentially revisit the case in the first quarter of 2015.

The report indicated:

Management is more than halfway through its SHIFT turnaround plan. The company has largely wrapped up balance sheet repair, and we estimate around 400 million euro in fixed cost cuts, 600 million euro in asset disposals and 600 million euro in debt reduction/refinancing to go before management can tick all the boxes on its 2015 goals in the SHIFT turnaround plan. … Second half of 2014 estimates appear largely de-risked now reflecting slower capex at AT&T and Verizon. However, we are concerned about the company’s ability to hit 2015 street revenue expectations. Here management’s revenue target for Core Networking of 7 billion euro seems demanding. … Overall a softer demand environment makes slower margin progress more likely … we prefer to see 2015 margin expectations reset first before potentially revisiting the turnaround case.

Alcatel-Lucent ADSs went out flat at $2.85 on Wednesday in New York trading, but the ordinary shares in local trading in Paris closed down 4.7% at €2.21 after closing at €2.32 the prior day. All in all, the Merrill Lynch call was very unenthusiastic.

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