Alcatel-Lucent’s (ALU, Financial) growth initiatives are paying off as it reported better than expected results in the previous quarter. In 2013, the company began its repositioning under the ‘shift plan’ to transform the business from a telecom generalist to one that is specialized in IP networking and Ultra-Broadband services. These efforts significantly improved its financials with subsequent upside move in the stock price. As a matter of fact, its shares had a good rally in the past few months and are moving steadily to its 52-week high.
Strong growth in orders will drive performance
During the quarter, its revenue declined marginally to $4.22 billion from a year ago period, while earnings shot up to 10 cents a share compared to 7 cents last year. It was around 150% above the 4 cents EPS estimate by analysts. The numbers were mainly driven by high margin products such as its internet routing division. With a strong presence in the U.S, Europe and Asia it hopes to continue this momentum in the coming months.
Alcatel continues to grow its share in the world-wide service provider market. There is solid demand for core router in the commercial market and the company bagged 36 new orders for this in 2014 and will continue to win many more of such orders in the days ahead. Moving to its SDN (software defined network) division, Nuage is doing good business with a number of new customers over the years.
The company is doing all it can to keep the orders flowing in. For example, the recently launched virtual portfolio is already a big hit with five wins and more than 50 trials for the VSR, specifically for the route reflector and routing stimulator product families. Such new additions will position Alcatel to solidify its sales.
In the wireless segment also, the company did well and bagged 11 new LTE wins during the quarter across EMEA and North America, while small sales continued to add to its revenue. Currently it has 76 customers in small sales and 133 contracts across the residential enterprise at mid wholesale portfolio. While there are headwinds in this segment, the company is working hard to bring it back to profitability by the end of 2015 and its current results prove the same.
Apart from these, Alcatel had strong numbers in its other businesses as well and seems to be well on track to achieve year over year growth in the coming years. Its operating cash flow was positive for the entire year, which is quite encouraging and indicates the strength in its fundamentals.
Going forward, the growth would continue as the management cites of a strong build up in its order book with various new contracts during the quarter. Although careful assessment of the financials shows a decline between 2012 and 2014, there has been a significant change in the composition of its revenue portfolio since then.
Conclusion
The company is now counting on its IP, cloud and ultra-broadband technologies to reallocate its resources and accelerate the development program. Currently, it does not have any trailing P/E but its forward P/E looks impressive at 12.9, indicative of significant improvement in its earnings. Moreover, the stock had a good rally in the past few months and looking at its future prospects, we could see more upside to this stock.
