Alcatel-Lucent: Time To Buy Or Flee?

May.18.12 | About: Nokia Corporation (NOK)

Alcatel-Lucent (ALU), incorporated in 1898, based in Paris, is a diversified global manufacturer of telecom equipment with operations in over 130 countries. The company operates in three business segments: Networks, applications and services. It is the world's leading supplier of digital subscriber line equipment and is among the top leaders in telephone switching equipment, optical and data networking gear and communications software.

Some reasons to be bullish on Alcatel-Lucent (ALU):

  • It is well positioned to benefit from the growing optics and IP markets. These two divisions currently represent 25% of the revenues generated from the total networks segment, and this figure is expected to move towards 30% by end of 2012.
  • Surging growth in mobile broadband data traffic has increased the expenditure in wireless equipment spending in North America. This has pushed carriers to add capacity and upgrade 3G data networks, which in turn should lead to increased revenues from its wireless division.
  • Net income increased from $-703 million in 2007 to $1.48 billion in 2011.
  • A decent levered free cash flow of $632 million.
  • A high beta of 2.29 makes it a good candidate for covered writes and for selling naked puts.
  • It's trading 1 dollar below book value.
  • Projected year over year growth rates of 63% for 2013.
  • A projected 3-5 year EPS growth rate of 10%.
  • A decent quick ratio of 1.11.
  • An adequate interest coverage ratio of 1.72.
  • Cash flow increased from $-0.22 in 2009 to $.050. in 2011.
  • Annual EPS before NRI increased from $-0.27 in 200y to $0.47 in 2011.
  • Zack's has a target price of 2.50.

Suggested strategy

Click to enlarge

There is pretty strong support in the1.25-1.30 ranges. We would wait until it trades within these ranges before committing money to this play. One other option would be to sell naked puts at strikes you would not mind owning the stock. We will be writing an article about a specific put strategy on Alcatel-Lucent soon. A weekly close above 2.55 on strong volume will turn the outlook from neutral to bullish. Finally, only individuals willing to take on some risk should consider this play.

Click to enlarge

Click to enlarge

Click to enlarge

Company: Alcatel-Lucent

Basic Key ratios

Percentage Held by Insiders = 1

Growth

  1. Net Income ($mil) 12/2011 = 1484
  2. Net Income ($mil) 12/2010 = -387
  3. Net Income ($mil) 12/2009 = -703
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 705.11
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 3663.64
  1. EBITDA ($mil) 12/2011 = 699
  2. EBITDA ($mil) 12/2010 = 82
  3. EBITDA ($mil) 12/2009 = -534
  4. Annual Net Income this Yr/ Net Income last Yr = 483.46
  5. Cash Flow ($/share) 12/2011 = 0.50
  6. Cash Flow ($/share) 12/2010 = -0.09
  7. Cash Flow ($/share) 12/2009 = -0.22
  1. Sales ($mil) 12/2011 = 20215
  2. Sales ($mil) 12/2010 = 21849
  3. Sales ($mil) 12/2009 = 20856
  1. Annual EPS before NRI 12/2007 = -0.27
  2. Annual EPS before NRI 12/2008 = -1.02
  3. Annual EPS before NRI 12/2009 = -0.23
  4. Annual EPS before NRI 12/2010 = -0.1
  5. Annual EPS before NRI 12/2011 = 0.47

Click to enlarge

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 10
  2. EPS Growth Quarterly(1)/Q(-3) = -137.33
  3. ROE 5 Year Average 12/2011 = -5.14
  1. Current Ratio 06/2011 = 1.34
  2. Current Ratio 5 Year Average = 1.25
  3. Quick Ratio = 1.11
  4. Cash Ratio = 0.7
  5. Interest Coverage Quarterly = 1.72

Other interesting companies

For investors looking for other investment ideas, detailed data has been provided on four additional companies. Additionally, investors can draw some ideas from our latest article: A Naked Put Strategy For Johnson & Johnson.

Company: Exelon Corp (NYSE:EXC)

Growth

  1. Net Income ($mil) 12/2011 = 2495
  2. Net Income ($mil) 12/2010 = 2563
  3. Net Income ($mil) 12/2009 = 2707
  1. Cash Flow ($/share) 12/2011 = 7.64
  2. Cash Flow ($/share) 12/2010 = 8.42
  3. Cash Flow ($/share) 12/2009 = 8.07
  1. Sales ($mil) 12/2011 = 19184
  2. Sales ($mil) 12/2010 = 18644
  3. Sales ($mil) 12/2009 = 17318
  1. Annual EPS before NRI 12/2009 = 4.12
  2. Annual EPS before NRI 12/2010 = 3.95
  3. Annual EPS before NRI 12/2011 = 4.16

Click to enlarge

Dividend history

  1. Dividend Yield = 4.00
  2. Dividend Yield 5 Year Average 12/2011 = 4.03
  3. Dividend 5 year Growth 12/2011 = 3.25

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.51
  2. Payout Ratio 5 Year Average 12/2011 = 0.49

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 0
  2. ROE 5 Year Average 09/2011 = 23.37
  3. Current Ratio 06/2011 = 1.1
  4. Current Ratio 5 Year Average = 1.2
  5. Quick Ratio = 0.93
  6. Interest Coverage Quarterly = 159

Company: Kodiak Oil Gas (NYSE:KOG)

Growth

  1. Net Income ($mil) 12/2011 = 4
  2. Net Income ($mil) 12/2010 = -2
  3. Net Income ($mil) 12/2009 = -3
  4. Cash Flow ($/share) 12/2011 = 0.32
  5. Cash Flow ($/share) 12/2010 = 0.07
  6. Cash Flow ($/share) 12/2009 = 0.01
  1. Sales ($mil) 12/2011 = 120
  2. Sales ($mil) 12/2010 = 25
  3. Sales ($mil) 12/2009 = 11
  1. Annual EPS before NRI 12/2009 = -0.02
  2. Annual EPS before NRI 12/2010 = 0.03
  3. Annual EPS before NRI 12/2011 = 0.17

Click to enlarge

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 50
  2. ROE 5 Year Average 12/2011 = -7.06
  3. Current Ratio 06/2011 = 1.76
  4. Quick Ratio = 1.5

Company: Southern Copper (NYSE:SCCO)

Basic Key ratios

Growth

  1. Net Income ($mil) 12/2011 = 2336
  2. Net Income ($mil) 12/2010 = 1554
  3. Net Income ($mil) 12/2009 = 929
  1. Cash Flow ($/share) 12/2011 = 3.09
  2. Cash Flow ($/share) 12/2010 = 2.14
  3. Cash Flow ($/share) 12/2009 = 1.4
  1. Sales ($mil) 12/2011 = 3193
  2. Sales ($mil) 12/2010 = 5150
  3. Sales ($mil) 12/2009 = 3734
  4. Annual EPS before NRI 12/2009 = 1.08
  5. Annual EPS before NRI 12/2010 = 1.81
  6. Annual EPS before NRI 12/2011 = 2.76

Click to enlarge

Dividend history

  1. Dividend Yield = 7.50
  2. Dividend 5 year Growth 12/2011 = 0.04

Dividend sustainability

  1. Payout Ratio 06/2011 = 1.01
  2. Payout Ratio 5 Year Average 12/2011 = 0.87

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 17.58
  2. EPS Growth Quarterly(1)/Q(-3) = -115.51
  3. ROE 5 Year Average 12/2011 = 42.76
  1. Current Ratio 06/2011 = 3.12
  2. Quick Ratio = 2.47
  3. Interest Coverage Quarterly = 19.38

Company: Anadarko Petrol (NYSE:APC)

Growth

  1. Net Income ($mil) 12/2011 = -2649
  2. Net Income ($mil) 12/2010 = 761
  3. Net Income ($mil) 12/2009 = -135
  1. Cash Flow ($/share) 12/2011 = 11.07
  2. Cash Flow ($/share) 12/2010 = 9.32
  3. Cash Flow ($/share) 12/2009 = 6.25
  1. Sales ($mil) 12/2011 = 13967
  2. Sales ($mil) 12/2010 = 10984
  3. Sales ($mil) 12/2009 = 9000
  4. Annual EPS before NRI 12/2009 = -0.96
  5. Annual EPS before NRI 12/2010 = 1.81
  6. Annual EPS before NRI 12/2011 = 3.38

Click to enlarge

Dividend history

  1. Dividend Yield = 0.60
  2. Dividend Yield 5 Year Average 12/2011 = 0.63

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.11
  2. Payout Ratio 5 Year Average 12/2011 = 0.2

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 27.15
  2. ROE 5 Year Average 12/2011 = 6.93
  3. Current Ratio 06/2011 = 1.42
  4. Quick Ratio = 1.42
  5. Interest Coverage Quarterly = N/A

Conclusion

The markets are still in a corrective phase and should remain volatile for the most part of the second quarter. Long-term investors can use strong pullbacks to slowly start deploying money into long-term investments. A great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Individuals looking for other ideas might find this article to be of interest: Is It Worth Getting Into General Electric?

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Consensus estimate analysis table sourced from reuters.com.