Alcatel-Lucent Hits 52-Week High - Analyst Blog

Shares of Alcatel-Lucent, S.A. (ALU) hit a 52-week high of $4.59 during yesterday's trading session. However, the stock closed the session at $4.50, reflecting a solid year-to-date return of 226.4%. The average trading volume for the last three months aggregated 14,708,147shares.

Despite its strong price appreciation, this Zacks Rank #3 (Hold) stock still has enough fundamentals that may further drive the stock upward. Positive earnings surprises in two of the last four quarters and long-term earnings growth expectations of 10.0% are some catalysts driving the stock.

Growth Drivers

Alcatel-Lucent is a leading provider for ultra-broadband, 4G and LTE (Long Term Evolution) networks. In the last quarter, the company reported strong top-line results driven by higher revenues across most of its businesses and regions, especially in North America and Europe. A number of new contracts and increasing demand for high speed wireless technologies and data services in the emerging markets are some of the other catalysts driving the stock.

The company's third-quarter results, reported on Nov 6, 2013 were encouraging as overall revenue increased, driven by growth in IP (Internet Protocol) and LTE technology. In addition, gross margin also improved due to a favorable product mix and higher volumes.

In the third quarter of 2013, Alcatel-Lucent's revenues increased 7.0% year over year and 3.1% sequentially. Revenues during the quarter were driven by strong growth in the IP revenues, Wireless and fixed-networks, which was partially offset by the company's older technologies.

Along with its third quarter results, Alcatel-Lucent also announced its plans to raise approximately $2 billion by issuing new capital and offering high-yield bonds for repaying debt and funding its restructuring activities while strengthening its equity.

The company is benefiting from its ongoing repositioning as per ‘The Shift Plan' that was formulated to transform itself from being a telecom generalist to a specialist in IP networking and Ulltra-Broadband services. The company now plans to shift focus from the older technologies (2G and 3G wireless equipment) to high potential newer ones like Internet routing. Under this plan, management intends to trim costs and sell its non-performing assets. Recently, the company announced job cuts to lower costs by approximately 15% by 2015. The company's Performance Program is also on target.

The next-generation super-fast 4G LTE technology has also boosted Alcatel-Lucent's performance. The growing acceptance of the LTE technology has prompted the mobile handset manufacturers to develop phones that will be compatible with this network.

Estimate Revisions

Over the last 7 days, the earnings estimates did not have any upward or downward revisions for 2014. Although there is a lacuna of estimate revisions, we envision an uptrend for the stock backed by its strong growth potential.

Other Stocks to Consider

Alcatel-Lucent currently has a Zacks Rank #3 (Hold). Other stocks in the industry which look promising at the moment include EXFO Inc. (EXFO), ClearOne, Inc. (CLRO) and TESSCO Technologies Inc. (TESS). EXFO currently has a Zacks Rank #1 (Strong Buy), while ClearOne and TESSCO both carry a Zacks Rank #2 (Buy).