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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: Logain Ablar who wrote (28340)	8/22/1999 5:58:00 PM
From: IQBAL LATIF	Read Replies (4) \| Respond to of 50167

Hidden Value Stocks: Connecting with Alcatel..I have been very positive on ALA, I thought this is a good report on ALA future prospects.. August 2, 1999 9:51 AM EDT By David H.M. Baker CFA The convergence of telecommunications, entertainment and information technology is creating customer demands for increased bandwidth and mobility. Convergence has swept across the North American telecommunications markets and I expect this momentum that has absorbed a large number of US-based firms will pick up momentum in Europe throughout the balance of this year and well into 2000. Once high profile companies like Ascend, Bay Networks and Cascade are but distant memories as the larger telecommunication sharks have eaten them. The Internet and an array of new technologies propelled these firms into the marketplace only to be scooped up by larger players seeking to capitalize on their lead in a specific technology or product niche. Today many investors salivate over the perceived leaders like Cisco (quote, chart, profile), Lucent (quote, chart, profile) and Nokia (quote, chart, profile). Yet they are missing one of the greatest companies on the planet, which along with Germany's Seimens (quote, chart, profile), is the best-positioned firm to prosper in the European telecommunications infrastructure buildout. The company is France's Alcatel (quote, chart, profile) with over $22 billion in revenues making it twice the size of Cisco and just behind the global leaders Lucent and Ericsson (quote, chart, profile). ALA is a global player that currently generates 60% of its revenues from Europe, 20% from the United States and 20% from the rest of the world. The key factor here is that the European telecommunications industry is approximately three years behind that of North America's and give this fact the continent is on the verge of a major buildout of its telecommunications infrastructure. ALA has longstanding relationships with many of the established players and it has strong inroads into many of the emerging telecom companies that are creating many of the leading edge communication networks. If we stand back and look at the growth in the US telecom infrastructure you can get a full appreciation of the potential business opportunity for ALA. There is little question it will experience competition from the US leaders, however in many cases it will be ALA's business to lose and in many cases its primary competitor will be Siemens. ALA is trading at a dramatic discount to the group that trades at an average price-to-sales multiple of 1.05 (versus 6.2 for the group) and its forward p/e of 37 times is one of the lowest among the leaders in this group. The company has been posting decent numbers although I expect those to improve considerably over the next 18 months, with increase in demand and given benefits from the internal cost cutting measures by management. As I have discussed previously, many of these European are remain much fatter than their North American peers, and as they adopt a more US-based competitive profile (do more with fewer people) the profitability will be considerably enhanced without any improvement in revenues. This factor combined with its relative under valuation and what I expect to be very robust, above average demand for ALA's products make this stock a great value at current prices. One last point that I believe may be a major contributor to the company trading at a considerable discount to its peers is its lack of visibility. Only four Wall Street analysts follow ALA, versus 36 for Cisco and 34 for Lucent. Historically a strong following by leading Wall St analysts is very closely correlated to stock performance. I would expect that ALA would gain a much broader following over the next twelve months. This should provide greater visibility, momentum and offer the platform for a multiple expansion for these shares.