Seeking Alpha
ETF investing, long only, research analyst, investment advisor
Profile| Send Message|
( followers)

Alcatel Lucent (NYSE: ALU) had a smash hit year and its stock price skyrocketed. Up from $1.40 quote on the first trading day of 2013, the French stock is now trading at $4.61. Now the big question is whether the stock will keep the party going? Let's have a look at the future plans of the company and see how it is going to fare this year.

Looking Ahead

Right at the outset, let's just admit that the company may not be able to repeat its stellar performance in 2013 which saw its stock price triple. However, this should not mean that the stock will not still be able to provide a higher than market return. In fact, it is highly likely that the company will perform as well as the previous year since it laid the groundwork for its future course of action. The success of the company will now depend on its efficacy to build upon the foundation.

In 2013, the company shook up its executive ranks and appointed Michel Combes as its new CEO. With Combes at its helm, the company is now looking to build a niche for itself. He introduced The Shift Plan, where the company is looking to focus on Ultra-Broadband and IP Networking. The company is already going ahead with the ultra-broadband plan since it signed a new deal with Lazus Telecommunication for providing LTE services in Colombia.

Alcatel is moving ahead with new technologies such as Vectoring to provide superfast broadband. The company is defending its position on the new technology despite persistent cynicism. The move is a part of its Shift Plan, under which the French company seeks to increase the share of its IP Networking and Ultra Broadband endeavors to 85% of its R&D investment by 2015.

At the tail end of the previous year, the company announced its collaboration with China Mobile (NYSE: CHL). The collaboration involves the deployment of a 4G network and is arguably the world's largest 4G project. The deployment will use Alcatel's small cells. The company also signed a strategic deal with Qualcomm for further developing its small cell offerings.

Watch Out for Roadblocks

While the company has already charted out its course of action, it is yet to be seen whether it will be able to implement the plans. The Shift Plan is beyond a doubt an ambitious one. Under this plan, the company seeks to sell 1 billion Euros worth of its assets. Late last year, the company announced the sale of its US Division LGS for $200 million. After post announcement, the company's stock slumped in the market. This shows that the market may react negatively to further asset sale news.

It also plans to slash its fixed costs by 1 billion Euro over a timeframe from 2013-2015. As a result, the company CEO has the odious task of curtailing costs while pumping up R&D efforts.

Financials

The French company has risen from its ashes and a cursory glance at its financial numbers show that the company stock is a bit expensive at the moment. It is trading at a Price Earnings multiple of over 16, whereas its peers such as Cisco Systems (NASDAQ: CSCO) hover around 12. It is quite likely that the stock price may see a little pullback this year to bring the multiple a tad lower.

Alcatel Lucent is not expected to show any profits in the current year and the earliest date for returning back to profitability is in 2015. However, quarterly numbers will be the precursor to the future trend.

The company is also expected to curtail its cost as part of The Shift Plan. Any decrease in costs will help Alcatel in boosting its margins. If you throw a better top line into the mix then you have the recipe to restore the company's profitability.

At the current price point, it is advisable to keep this stock on a watchlist and see how its reorganization story unfolds. So far, the future looks fine. It is also equally likely that the stock will see some pullback during the year even if the company manages to stay on track. Any such pullback can be used to open the position of this stock.

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.

Source: Can Alcatel-Lucent Walk The Talk With The Shift Plan?