Seeing Value in Lucent-Alcatel: Goldman Sachs Raises Ratings

By Douglas A. McIntyre Published Apr 25, 7:30AM EDT

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Goldman Sachs is raising its rating on troubled network and telecom equipment giant Alcatel-Lucent (ALU-NYSE/ADR). The firm raised its official rating to a BUY from NEUTRAL, and shares are up more than 2% pre-market on more than 100,000 shares.

Goldman ays it believes that the company’s order recovery meaningfully improves the risk-reward and noted a book-to-bill ratio of 1.3 at the end of Q1. The report gives a 16% upside based on higher sales volumes boosting margins and as restructuring benefits materialize in the second half. Goldman also believes that downside much lower than current prices is limited even if near-term earnings disappoint. In short, they think the bad news is baked in. Investors believe the company can achieve greater than 10% EBIT margins. Goldman is raising its sales and earnings forecasts, and expects solid guidance with earnings in May and potentially positive news at the June 11 strategy announcement. Goldman also notes that execution is a risk on aggressive pricing or that it doesn’t meet cost cutting initiatives.

ON a dollar-adjusted basis, Goldman is raising current fiscal targets from $0.18 EPS to $0.26 EPS and next fiscal year targets are raised from $0.86 EPS to $0.99 EPS. Based on the writing and British Pound comments, this report looks like it came from overseas coverage. The ADR’s are at $13.45 pre-market, up from the $13.16 close yesterday; its 52-week trading range since the merger completed is $10.63 to $15.60.

Jon C. Ogg
April 25, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.