Alcatel-Lucent (NYSE:ALU), listed on the New York Stock Exchange as Alcatel-Lucent, today is a company that focuses on providing point-to-point communication systems that deliver either data or voice or both. The customer base includes telecommunication carriers, corporations and even individual consumers. Alcatel works on a global level, not limited to one particular country in terms of its market. However, the company is specific to the telecommunication industry, and doesn't work in other areas.
Recent Market Activity
As an investment, Alcatel-Lucent is a bottom-feeder among major market listings. This was not always the case. In August 2000 Alcatel-Lucent was listed at a range of $82.50 per share. However, since that time there has been a very long fall from grace, with market watchers today getting excited when the company's stock actually hit $2/share towards the end of July 2013. It normally averages closer to $1.50/share.
The current blip above the $2 mark was due to a recent announcement by the company of a new "power shift" paradigm being put into place strategy-wise, with the hope of returning the company to its former heights in equity value and performance. The plan involves consolidation as a primary tool, shrinking commitments off of multiple projects to just a few core business functions and then doing them well. The plan also involves extensive cost-cutting and selling of surplus assets to be completed by 2015.
The power shift strategy sounded great, especially to Wall Street, which is why Alcatel-Lucent's stock went up. However, the effect of the company words alone doesn't last long, and a few days ago that new value break started to erode again back below the $2 mark. Now, eyes are watching Alcatel-Lucent for its 2nd quarter results which are expected this week on July 31. Many are looking for the reality of business math to throw cold water on all the excitement and either prove or disprove the strategy's effectiveness.
Company Fundamentals Analysis
Wall Street pundits are anticipating Alcatel-Lucent to show a slight growth in revenues at $4.52 billion, but the company's performance per share will still be in the red at -$0.11. This is compared to the previous quarter which produced $4.13 billion in gross revenue and an EPS of -$0.19, a drop in year-to-year over revenues the same time in 2012 at $4.28 billion and EPS in 2012 at -$0.24. On the fundamentals, the company has been flip-flopping. Gross operating margin scored 29.4 percent which was worse than a year ago. On the other hand, the operating margin was -7 percent, an improvement over the same period. Unfortunately, the net margin came in at 10.9 percent and seriously worse than a year ago. When both the operating margin and net margin are performing worse as of last quarter versus prior year, it doesn't bode well for 2nd quarter results to suddenly do much better on July 31.
Possibilities Going Forward
In terms of financial prognostications, the recent rise to $2/share has been a pure speculation run without substance. Analysts across Wall Street have generally pegged the company price target at a far lower level of $1.52/share, regardless of recent changes. As a result, many expect the recent run up for Alcatel-Lucent to be temporary and a fool's gold situation, potentially catching many consumer investors with what looks like a rise that will deflate quickly. Instead of giving Alcatel-Lucent a recommendation, a number of market analysts are scoring the company as an Underperform to stay away from.
To confirm those concerns, one just needs to look at the management of the company. Two recent change outs of a company CEO don't bode well for the strategic direction of a business the size of Alcatel-Lucent. Ben Verwaayen retired at the beginning of 2013. Prior to Verwaayen, who pretty much retired due to poor company performance, Pat Russo ran the company from 2006 until September 2008.
Further, even the credit market has little love for Alcatel-Lucent, downgrading its credit status to a B3 per Moody's and B- per their counterpart, Standard & Poor. For reference, that is essentially six levels well below any kind of healthy investment grade in professional circles.
Alcatel-Lucent currently represents a major market version of a penny stock. The company's value per share can inflate wildly on speculation and drop just as quickly. However, on an actual company performance basis, there's a reason why Alcatel-Lucent has been sitting in the low single digits all these years. There simply isn't anything going on business-wise that gives Alcatel-Lucent a reason to be worth more than it is. So investors should beware, Alcatel-Lucent is a pure speculative play on current emotions and wild chatter. The company has yet to prove why it should be given a market evaluation above its current range, much less anything close to its heyday value of $82/share. Changing out top managers on a frequent basis isn't helping matters either.