Don't Bet On Alcatel-Lucent's Turnaround

Telecom equipment maker, Alcatel-Lucent (ALU), announced its quarterly results last week. The results were no different from previous quarters in which the company reported losses as well. In the third quarter the company generated revenue of 3.60 billion Euros ($4.62 billion), down approximately 3% from the third quarter of the previous year. Analysts were expecting the company to report revenue of 3.50 billion Euros ($4.50 billion). Despite the revenue beat, ALU posted a loss of 156 million Euros ($200 million) compared to a net profit of 220 million euros ($283 million) in Q3 2011.

ALU has lost almost a third of its value since the start of the year. However, the worst decline came just after the company reported its results for the third quarter, losing almost 10%. ALU is trading at 13 times its trailing earnings, a premium of over 200% to its historic average. Forward price to earnings multiple of 20x for ALU is also much higher than Ericsson's (ERIC) multiple of 13x, indicating that the stock is expensive on valuations. Since our last report, the stock is down 12%, and we reiterate our previous sell stance based on continued operational deterioration for the company and expensive valuations.

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