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The Israeli newspaper Haaretz last week reported that telecom equipment company ECI Telecom (ECIL) could be acquired by ADC Telecommunications (ADCT). In a research note this morning, Citigroup analyst Michael Genovese says that a deal is “very unlikely.” Nonetheless, Genovese makes the case that ECI is much too cheap.

Genovese conducts a sum-of the-parts valuation of the company. He notes that the company, which has a market cap of about $1 billion, has $250 million in cash. He asserts that the company’s largest division, which makes optical components, is worth at least 2x revenue, a conservative valuation compared to rival Ciena (CIEN), which trades at about 3x revenues. He sees 2007 optical revenues for ECI of $443.4 million, which implies a valuation of at least $886 million. He values the company’s access division, at 1x revenue, or about $205.6 million; and he awards a valuation of zero to the company’s dilutive data networking division. The bottom line: a sum-of-the-parts valuation of $11.28 a share.

Genovese says he does think the company is a potential acquisition candidate, but says the ADC rumors “make no sense” in terms of a fit with ADC’s existing business lines.

He has a Buy rating on the stock.

ECI shares today are up 38 cents at $8.73.

Source: ECI Telecom Appears 'Much Too Cheap'