Can Alcatel-Lucent Stock Recover After Job Cuts Announcement?

| About: Nokia Corporation (NOK)

Alcatel-Lucent (ALU) is a French telecommunications equipment firm that manufactures mobile phones. Alcatel-Lucent stock has recently been placed as one of the stocks to watch out for this year. There had been a number of investors who were interested in Alcatel-Lucent stock, but it seems like most, if not all of the pieces of information point to Alcatel-Lucent hitting rock bottom. However, this may not be the end for Alcatel-Lucent because it still has the potential to be stronger and become a more profitable investment in the very near future.

Job Reductions

Michel Combes, the Chief Executive Officer of Alcatel-Lucent announced that it will eliminate as many as 10,000 jobs around the world. Most of the cuts will take place in Europe, particularly in France. Other places include the Middle East, Asia, the Americas, and Africa. The company's sites in Toulouse and Rennes, two French cities, will also be shut down. The job cuts are needed so that the company can effectively cut costs.

Alcatel-Lucent also intends to sell assets worth 1 billion euros by 2015. According to experts, the slimmer organization will be more attractive for Nokia (NYSE:NOK), which is a possible acquirer of the company. Nokia will soon be a manufacturer of wireless networks after the sale is completed when the shareholders vote in favor of the sale on November 19, in Helsinki, Finland.

Nokia and Alcatel-Lucent Possible Combination

There have been talks that Nokia has already discussed the possible purchase of Alcatel-Lucent. As the job cuts loom, many have commented that Alcatel-Lucent is following Nokia's steps. In late 2011, Nokia eliminated thousands of positions - a total of 23% of the workforce. It continued to reduce jobs and it looks like Alcatel-Lucent is doing the same thing. If the acquisition ensues, the two will be unstoppable as they pose a much greater challenge to their two main competitors, Ericsson (NASDAQ:ERIC) and Huawei.

Speculation has been made regarding the possible purchase of Alcatel-Lucent by Nokia. In consideration of the cash position, Nokia may take action on the deal with Alcatel-Lucent by the end of the 4th quarter this year. However, the best possible time would be in the 2nd quarter of 2014. With the Nokia-Alcatel-Lucent possible combination, Alcatel-Lucent has the capacity to become a strong buy.

Deciding on Alcatel-Lucent Stock

One of the hardest questions to answer with Alcatel-Lucent today is whether or not it can bounce back after the job cut announcement. While Alcatel-Lucent is still not in its best place right now, many analysts are positive. In fact, they have supplied a number of motivations for investors as to why Alcatel-Lucent stock is not a sell or a hold, but a definite buy.

Although the job cuts are not accepted with open arms by the general public, the company backs up its decision to let go of some of its workforce. According to Alcatel-Lucent, the job reduction will allow Alcatel-Lucent to save as much as $1.3 billion. This huge amount of savings will provide the helping hand that Alcatel-Lucent badly needs especially since it has responsibilities to investors.

Another good reason to look into adding the Alcatel-Lucent stock to an investor's portfolio is the market capitalization of the company. Right now, the total dollar market value of Alcatel-Lucent is around $8 billion with more than 2.2 billion outstanding shares. The question of whether or not the company has hit rock bottom is yet to be answered. However, analysts believe that many investors today are undervaluing the Alcatel-Lucent stock.

Research analysts including Natixis look positively on the Alcatel-Lucent stock. As a matter of fact, it has raised its price objective on Alcatel-Lucent's shares. From €3 (equivalent to $4.05), they have increased the price to €3.30 (equivalent to $4.46). What is even more interesting is that they have rated the Alcatel-Lucent stock as a "buy" despite some of the recent trading downfall. Other analysts agreed with Natixis. For the researchers of Sanford C. Bernstein, their price target on Alcatel-Lucent shares grew from €1.10 (or $1.49) to €2.70 (or $3.65).

There are mixed emotions on this particular stock, but some are firm that the company will be better in the coming weeks. The Alcatel-Lucent stock may have performed weakly, but it is once again gaining momentum and is therefore a stock to keep a close watch over.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.