We reiterate our long-term Neutral recommendation on
). The company reported disappointing financial results for the
first quarter of 2013. Both the top line and the bottom line fell
below the Zacks Consensus Estimate. Meanwhile, the stock price of
Tellabs declined 46% in the last year and is currently trading at
the low-end of its 52-week price range. We believe that this
low-level of valuation may act as a cushion for further downslide
of the stock price.
Why the Reiteration?
Tellabs is facing serious problems in its core wireless
backhaul solutions segment.
) was the major customer for its 8800 multi-service router.
However, AT&T decided to upgrade its network with pure
Ethernet solutions since the company is aggressively deploying 4G
LTE networks. As a result, AT&T is not using Ethernet routers
of Tellabs now. AT&T historically generated 35% of the
company's total sales and 40% of the Data product revenues. In
the first quarter of 2013, Data product revenues of Tellabs
were down 52.6% year over year.
Moreover, Tellabs' worldwide reputed high-margin digital
cross-connect products continued to show a downtrend. The board
of directors has decided to stop dividend payment in the first
quarter of 2013. Management provided a weak financial guidance
for the ensuing second quarter.
Nevertheless, management has taken several strategic decisions
to restructure Tellabs' business model emphasizing on the mobile
Internet sector, including mobile backhaul solution, IP-packet
optical solution and Tellabs' Insight Analytics Services.Tellabs
is aggressively targeting the booming mobile Internet markets
since its legacy switching products are losing relevance.
Other Stocks to Consider
Tellabs currently has a Zacks Rank #4 (Sell). However, other
stocks in the same industry that are worth considering include
Ubiquiti Networks Inc.
). Both these stocks currently carry a Zacks Rank #1 (Strong
SHORETEL INC (SHOR): Free Stock Analysis
AT&T INC (T): Free Stock Analysis Report
TELLABS INC (TLAB): Free Stock Analysis
UBIQUITI NETWRK (UBNT): Free Stock Analysis
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