Alcatel Downgraded to Underperform - Analyst Blog

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On Jul 22, we downgraded Alcatel-Lucent ADS ( ALU ) to Underperform based on this diversified global telecom equipment manufacturer's dismal first quarter results.

Why the Downgrade?

Estimates for Alcatel-Lucent, which focuses on the mobile infrastructure and communications software market, have been trending down ever since it reported first quarter results on Apr 26. Alcatel-Lucent's first-quarter revenues of $4.26 billion missed the Zacks Consensus Estimate of $4.27 billion and the reported loss of 20 cents a share was wider than our estimate of loss of 11 cents per share.

Following the release of first quarter results, the Zacks Consensus Estimate for 2013 has widened 3.0% to loss of 34 cents per share. The Zacks Consensus Estimate for 2014 has also widened significantly by 8.3% to loss of 13 cents per share. With the Zacks Consensus Estimates for both 2013 and 2014 going down, the company now has a Zacks Rank #4 (Sell).

Cause for Concern

The company's first quarter results were not encouraging as overall revenues dropped due to decline across its segments. In addition, gross margin was impacted by weakness of the U.S. dollar and an adverse impact from product and geographic mix.

Further, changing its chief executive officer twice has not helped the company as it failed to revive its earnings. In addition, Alcatel-Lucent has a credit rating of B3 from Moody's Investors Service and B- from Standard and Poor's, both being six steps below investment grade ratings.

Stocks That Warrant a Look

While we prefer to avoid Alcatel Lucent until we see signs of improvement in the company's performance, other telecom stocks worth a look are Mitel Networks Solutions ( MITL ), Sonus Networks Inc. ( SONS ) and Motorola Solutions ( MSI ). All three carry a Zacks Rank #2 (Buy).

ALCATEL ADS (ALU): Free Stock Analysis Report

MITEL NETWORKS (MITL): Free Stock Analysis Report

MOTOROLA SOLUTN (MSI): Free Stock Analysis Report

SONUS NETWORKS (SONS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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