Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Lucent Technologies (LU) -- Ignore unavailable to you. Want to Upgrade?

To: tajen who wrote (10719)	10/26/1999 2:02:00 PM
From: Diamond Jim	Respond to of 21876

Lucent, the company formerly known as Bell Labs, beat Street estimates by 2 cents this morning. But despite a strong fourth quarter, some analysts like Lucent's competition as long-term stock plays. It is true that since AT&T Corp. {T} spun off Lucent Technologies Inc. {LU} in 1996, investors have enjoyed a solid run uphill. But Lucent's stock stalled this year and the company's most-recent numbers don't compare strongly with Cisco Systems and Nortel Networks. Lucent shares were up 3 3/4 to 63 5/8 at midday. The communications company said that fourth quarter revenues increased 23 percent to a record $10.58 billion compared with $8.6 billion in the year-ago period. Earnings were up 50 percent over the year-ago quarter to $972 million or 31 cents a share, excluding charges. Lucent's Stock Performance Since Going Public Sounds like good news, so far. However, Lucent's fourth-quarter revenue growth of 23 percent pales by comparison with Cisco's 48 percent rise for its most-recent quarter (Cisco {CSCO} is scheduled to report earnings on Nov. 9). And though the Murray Hill, N.J.-based company's gross profit margins have been steady at just below 50 percent, Cisco gets more bang for the buck. Furthermore, the company must contend with up-and-coming Nortel Networks Corp. {NT}, which has been rapidly winning favor with investors and Wall Street with its optical-networking capabilities. Lucent is increasing earnings at a faster rate than Nortel, but Nortel is also getting a higher multiple, says analyst David Heger of A.G. Edwards & Sons. "Nortel's optical business has been strong, and it has gained the psychological edge that Lucent has since lost," he adds. Comparison Chart: LU, CSCO, NT What's the story behind Lucent's choppy stock performance this year? Issues with the company's balance sheet, high inventories, high accounts receivables, the quality and source of its earnings growth, and day sales outstanding getting longer. (Tracking DSO reveals if customers are paying in a timely manner.) Despite the quarterly sloppiness this year, Heger upgraded the stock Monday to "buy" from "accumulate," primarily due to valuation and recent weakness in the stock. Indeed, relative to where Nortel is trading, Lucent appears "undervalued," Heger says. But Donaldson Lufkin & Jenrette's analyst Eric Buck is less optimistic. "They have overpromised the growth and may be finding it difficult to meet those targets." What does Buck, who has a "market perform" rating on the stock recommend to Lucent investors? "There are better places to be," he says. Technically speaking, shares of Lucent have dipped below their one-year, 200-day moving average. Lucent One-Year Performance Chart with Its 200-Day Moving Average Lucent's stock experienced some huge selling last week as it dipped below the trend line, which could mean that the correction isn't over yet. "It's clearly not in a strong position, and I would stay away from it," says one technical analyst who prefers not to be named. Despite the lingering clouds over Lucent, CIBC's Martin Pykkonen says investors have discounted Lucent's growth rate a bit too much. "As long as we have bandwidth demand, this company won't go away." Unfortunately for Lucent, there has been no new catalyst to drive the stock. And its biggest threat comes from the optical space. "It's too early to say, but there's enough market potential for all the players to play together," Pykkonen says. One key theme for the CIBC analyst is international business. Over the past year, Lucent's international business has grown 45 percent. Considering its origins under the Bell system, which focused on domestic business, the company has come a long way. Domestic business represents a large portion of Lucent's total business -- somewhere in the low 70 percent range. By comparison, Nortel's domestic business accounts for 50 percent. Analysts are looking for more balance and would like to see international growth from Lucent in the 40 percent range year over year. Despite Nortel's current favorable status on the Street, analyst Paul Sagawa of Sanford C. Bernstein & Co. says he favors Lucent for the long term based on the simple fact that eventually, earnings matter. "Lucent's stock is at a fire-sale price, and all the shorts will be covering once the fourth-quarter earnings come in," Sagawa says. Investors beware. The fire still doesn't make Lucent a hot stock.

To: tajen who wrote (10719)	10/26/1999 2:05:00 PM
From: Diamond Jim	Read Replies (1) \| Respond to of 21876

"What does Buck, who has a "market perform" rating on the stock recommend to Lucent investors? "There are better places to be, he says." -- Where? what a sore loser, what a jerk Buck is.