Finder, Opinions are on both ends of the spectrum. Here is another bullish article.
Why Lucent Continues to Shine
TODAY I. I. A N A L Y S I S
individualinvestor.com
senior analyst: Adam Lowensteiner 10/22/99
Do a couple of analysts know something others don't know?
A week before Wall Street darling Lucent Technologies (NYSE: LU - Quotes, News, Boards) is set to announce
its fourth quarter and year-end results, two analysts have boldly told investors to take the plunge.
First, Nikos Theodosopoulos, an analyst with Warburg Dillon Read, raised his rating on the telecom equipment
concern to 'strong buy' from 'buy.' Later Alex Cena of Salomon Smith Barney reiterated his 'buy' rating on shares
of Lucent, with a 12-month price target of $100 a share.
As many investors already know, Lucent has beaten analyst estimates just about every quarter that it has reported
since its divestiture from AT&T (NYSE: T - Quotes, News, Boards) three and a half years ago.
However, shares of Lucent have been beaten up of late, on no blockbuster news, causing concern for some
momentum investors in the stock. As a result, the stock has plunged to $56.13 a share, or about 30% off of its
high of $79.75 a share.
The weakness in Lucent has been partially due to the market's weakness. But there is also concern about its
accounting procedures, which have been publicly questioned in published accounts.
However, in a recent report Cena asserts that the accounting accusations are bogus, and if anything Lucent has
better leverage than some of its competitors. Cena added that Lucent's ability to produce a better collection cycle
than some of its peers is a huge feat, as Lucent has been building its international exposure the last several
quarters.
International sales typically have longer collection cycles. But Lucent might improve its days sales outstanding
(DSOs) by five days this quarter, according to Cena.
Cena is expecting a decent growth quarter from Lucent, with revenue to hit $10 billion, up about 16% from $8.6
billion last year. On the bottom line, Cena is expecting earnings per share to climb by 34% to $0.28 a share from
$0.21 earned in the same quarter a year ago.
Specifically, Cena believes Lucent's revenue 'will be driven by strength in Network Systems due to solid gains in
wireless and optical systems,' as he noted in a recent report.
Sure competitor Cisco Systems (NASDAQ: CSCO - Quotes, News, Boards) is involved with a lot more Internet
backbone that Lucent, with slightly better margins. But Lucent trades for about five times its sales base, and less
than 60 times its trailing earnings, while Cisco trades for 19 times sales and 109 times trailing earnings.
It comes as no surprise that two analysts are pounding the
table on shares of Lucent, especially a week before year-end
results are announced.
Consensus earnings estimates, according to I/B/E/S are set
at $0.29 a share for the fourth quarter and $1.25 a share for
the fiscal year, which ended September 30. Whisper
estimates are as high as $0.33 a share, but Lucent could
beat even that figure.
Why? For one thing, the company beat estimates the last
two quarters by an average of $0.04 a share. In addition, the
fourth quarter is typically Lucent's second largest in terms of
volume.
The upcoming quarter, which is Lucent's first quarter of fiscal
2000, is the company's strongest of the year. Lucent's fourth
quarter results should be out October 26, next Tuesday,
before the opening bell.
Bottom Line:
Lucent's shares are clearly not dirt cheap, trading at 40
times next year's estimate. But its fundamentals remain
intact. With wireless infrastructures still growing at fast rates
and Lucent supplying networking solutions for the Internet,
earnings have been predictable at the technology company
and a slowdown does not look imminent. |
