Alcatel-Lucent Stock Gains But Poor Outlook Sends Mixed Messages

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In the last year, Alcatel-Lucent (ALU) has seen a 200% growth in its stock value, received a decent assortment of contracts to improve and support telecommunications infrastructure and access projects in North America, Europe, Asia and the Middle East, and embarked on a bold new forward-thinking mission.

ALU 1 Year Price Returns Chart

ALU 1 Year Price Returns data by YCharts

With circumstances like that, it seems like every investment analyst should be in the company's corner, cheering on its transformational efforts. Not necessarily.

Bottom Up Investing, for one, recently agreed about the excellent things going on. But it also concluded that the company is overleveraged and has been neglecting physical improvements to its properties while placing too much attention and resources on what it calls "The Shift."

"The Shift" is Alcatel-Lucent's now-official term for its transition from a company that provides telecommunications hardware and related services to an "industrial specialist" offering high-performance networks, cloud-based services and ultra-broadband access.

The initiative was announced over the summer but began gaining momentum this fall.

At a tech symposium in mid-November, CEO Michael Combes and other company officials outlined specific goals to achieve not only a new focus but a stronger and financially sound company.

To get there, it also plans to cut 15,000 employees by 2015, a 15 percent reduction, and divest more than $1 billion in assets. Along the way, it plans to add 5,000 new positions which will hone in on the new Shift-based efforts. Combes said the upcoming changes are all about "regaining control of its destiny."

Shares of Alcatel-Lucent are doing well, at least for the short-term.

As of November 2012, the stock was trading right above $1, and didn't hit $2 until July 2013. Since then, it has posted a steady increase until reaching $4 at the beginning of this month.

Historically Alcatel-Lucent has also weathered highs and lows, including a record high of $82 in 2001 which plummeted to under $2 a year later. It made it back to $16 by 2004, but then began a slow descent until the present reversal.

PC World shared that Alcatel-Lucent is eager to see the results of some of its new ventures, like its software-defined platform it calls Virtualized Services Platform, which offers an array of routers and switches for network operations. This will be ideal for data center customers and could conceivably cut into the market share of companies like Cisco (NASDAQ:CSCO).

It also is helping phone providers support LTE networks, such as China, which is being designed to be the world's largest. The company is the primary supplier of Evolved Packet Core technology for this network. It is also working with Bezeq Israel Telecommunications Co., to upgrade its network and connect more users and South Korea's SK Telecom (NYSE:SKM).

Based on this info and outlook, what should investors do?

We suggest hanging onto your shares. There's a lot of potential ahead especially once these international projects begin bearing fruit.

It is surprising to some degree that many recognized financial experts are already writing off Alcatel-Lucent as a done deal.

The even evoked that dreaded and dreadful phrase from the dotcom bust days - "the dead cat bounce" which describes a slight bump that may occur after a plummeting stock hits rock bottom. It made a sell recommendation at the end of October and suggested that the company's debt-to-income ratio is much too high and there's too little return on equity.

However, the stock still continued to gain in November after this announcement, which was certainly welcome news for investors who weren't willing to move all that fast to unload their shares as they were suggested.

Overall, we can expect to see more positive surprises from "The Shift." The company isn't going to turn around right away, especially with so much momentum to counter. The company has a clear vision forward, which is much more defined than the confusion and uncertainty we're seeing on the analyst side.

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.