Alcatel-Lucent, S.A. (ALU), France’s biggest telecommunications-equipment supplier, increased the most in a year offering higher profit margins and declaring a plan to increase cash from its trove of 29,000 patents.
The Paris-based company leaders stated on February 10, 2012 that revised operating profit as a percentage of sales will enhance from the 2011 to a level of almost 3.9%. It was also reported a complete-year net income of 1.1 billion euros or $1.5 billion, the first yearly profit in a long span of six years. The shares rose $0.18, or 12%, at the close of trading in the French capital that day, their sharpest rise since February 10, 2011.
Further, the firm plans to attain in 2012 a revised operating margin greater than the 3.9% announced in 2011, while reporting strong positive net cash position at the close of 2012. I expect the company to continue an opportunity of early growth after a six year decline as a result of the new managing strategy.
CEO Strategy Really Worked:
The previous year marked the conclusion of CEO Ben Verwaayen’s three-year strategy (created by the 2006 combination of Alcatel SA and Lucent Technologies) to drive the company back to a profit. Alcatel-Lucent’s intention to license its patents, counting fixed-line and wireless technologies, imitates a strategy of competitor Ericsson AB (ERIC) adopted as expenditures by phone operators on gear orders.
This imitation has offered a tremendous amount of success which in my opinion helps to encourage investor confidence. The merging of these two companies has proven highly beneficial as the company continues to display positive growth despite outside economic impacts such as the declining European economies.
Verwaayen stated in a conference call that they are in a very unusual position than they were perhaps a year earlier. He further added that the plan was to be normal by the close of 2011, and they did not achieve all of the goals there. But what they are telling the investors for 2012 is that they are optimistic.
Key Ratios to Focus:
After losing approximately 85% of its market capitalization in the previous 5 years, Alcatel-Lucent is changing hands at $2.39 with a yearly range of $1.39 - $6.63. It currently has a market capitalization of $5.75 billion. Price to book, price to sales, and price to cash ratios remained at 1.05, 0.26, and 0.92 respectively. Operating margin stands at 1.33%, and net profit margin at 5.16%. The stock is extremely volatile with a beta value of 2.44 times. The firm has some debt issues. It has debt to equity ratio of 1.20. Alcatel-Lucent has not been giving any dividend since 2007. In 2007 the last dividend paid was of $0.16.
Alcatel-Lucent held a 4-star ranking from Morningstar. Average five-year annualized expansion forecast estimate is 8.2%. In the prior 5 years, the company has been a huge loser, but the 2012 outlook implies that it is an attainable expansion rate.
Don’t put all Eggs in One Basket:
Signs are positive for the company in the upcoming 2012 fiscal year. The management predicts a greater operating margin, as well as a solid net cash position by the close of this year. The popularity of the smart phone will also help improve the trend of success for the company's software division.
The stock has given back about 60% in the previous 2 months. This is a frightening factor for many investors. Yet, the stock still has 64% positive potential to claim its 52-week high.
Against industry heavyweight Qualcomm (QCOM), Alcatel-Lucent is changing hands at a dirt cheap rate. Definitely, Qualcomm's balance sheet is approximately debt-free, while Alcatel-Lucent has loads of debt. But, Qualcomm's P/E ratios are considerably greater than that of Alcatel-Lucent’s ratios. If Alcatel-Lucent can attain Qualcomm's margins through cost savings, Alcatel-Lucent could expect a higher stock value, since it will achieve elevated sales.
When these factors are compared between Alcatel-Lucent and Qualcomm I feel it helps to display an opportunity for growth which should aid in inspiring investor confidence. The affordable price of Alcatel-Lucent combined with the low P/E ratios helps to account for a positive trend in the company as it overcomes its past five years of economic struggle.
Other leading competitors include Ericsson and Cisco Systems (CSCO). Ericsson has a closer market capitalization to Alcatel-Lucent, currently around $31.25 billion therefore any increase in stock value from Alcatel-Lucent would likely be closer to this company. One investment opportunity which is currently unavailable with Alcatel-Lucent is seen with dividend disbursement. Cisco offers its investors a dividend yield of 1.62% while Ericsson offers 3.75% and Qualcomm provides investors with a dividend yield of 1.38%
If you are an investor who is seeking the benefits of both stock investment and dividend payout, currently the opportunities of Alcatel-Lucent cannot meet your expectations. When looking to expand upon dividend payout in this market, it may be advisable to pursue competitors like Cisco, Ericsson, or Qualcomm.
Steve Cohen's SAC Capital is very confident on the stock, and improved its shares by 4.5 million. James Simons' Renaissance Technologies as well have greater than $6 million Alcatel-Lucent shares. Therefore, the big money is tracking the stock. Although I would not recommend putting all of your eggs into one basket, Alcatel-Lucent could be a marvelous addition to the speculative section of your portfolio.
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