Analyst Says Alcatel (ALU) Faces Two-Headed Monster, Slashes Target to Zero

July 27, 2012 11:52 AM EDT
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Price: $3.46 --0%

Rating Summary:
    14 Buy, 7 Hold, 6 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 24 | Down: 17 | New: 14
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Alcatel-Lucent SA (NYSE: ALU) shares are flat on the session amid comments from one firm which pegs the value of the network maker at or near nil.

RBC, which currently rates Alcatel at Underperform, cut its price target from $1 down to zero. The firm said that Alcatel might be facing a double-edged sword of high cash burn and falling profit.

Specifically, RBC noted that Alcatel will have a tough time recovering while Chinese company's like Huawei and ZTE face lagging demand and profits.

Another firm, Bernstein, said that though bankruptcy risks for Alcatel have increased, they remain remote as the Company's ability to manage refinancing deadlines remains intact until 2014. Bernstein also noted that gross margins deteriorating to 30 percent or below would mean bankruptcy risks would be material for Alcatel over the next two years.

Bernstein cut its price target 29 percent to €1, keeping a Market Perform rating on the stock.

Nomura agreed, saying Alcatel's declining cash levels would "critically" constrain liquidity by 2014, if certain changes aren't made.

Earlier today, Capstone Investments cut its rating on Alcatel from Hold down to Sell.

Comments and cuts come following the company reporting a 7.1 percent drop in revs and operating loss of €31 million early Thursday morning. In addition, Alcatel announced a new performance program in looking to cut costs by €1.25 billion. About 5,000 positions will be eliminated as a result.

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