Tellabs (NASDAQ:TLAB) shares slipped back after a two-day rally spurred by an unconfirmed report from TheStreet.com that the company is going to be acquired by Nokia (NYSE:NOK). Tuesday morning, Tellabs reported second quarter results that topped expectations, with revenue of $535 million and pro forma EPS of 7 cents, versus the Street at $513 million and 6 cents.
On the other hand, the company said it expects non-GAAP gross margins for the third quarter of 36%; Jefferies & Co.’s George Notter notes Wednesday that he had expected 42.6%. Combined with expectations that operating expenses will be flat to slightly down, he says, and EPS looks likely to miss the current Street consensus of 9 cents.
Notter, who has an Underperform rating on the stock, says the stock is “clearly” trading on the potential acquisition of the company; he advises selling into the rumors, and asserts that the reported $16-$17 a share bid price would give the company a “very rich” valuation. He thinks, in fact, that it could be a deal breaker.
Goldman Sachs’ Brantley Thompson, who has a Sell rating on the stock, says upside from here will require a big buyback or a takeover; he maintains his $11 price target.
Likewise, Kenneth Muth, at Robert W. Baird, repeated his Neutral rating on the stock Wednesday; he thinks the stock could be worth $14-$15 a share in a takeout, though, and Wednesday set a price target of $14. In a similar vein, UBS’ Nikos Theodosopoulos Wednesday upped his target to $14 from $11.30, to reflect a potential takeover, but maintained his Neutral rating. Theodosopoulos trimmed his EPS estimates to 32 cents from 37 cents for this year, and to 44 cents from 56 cents for next year.