Deutsche Bank Lifts Alcatel (ALU) to Buy, Says Market Discounting Too Much, Liquidity Intact

January 11, 2012 7:10 AM EST Send to a Friend
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Price: $3.45 --0%

Rating Summary:
    13 Buy, 9 Hold, 5 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 11 | Down: 14 | New: 51
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Alcatel-Lucent (NYSE: ALU) shares are moving higher Wednesday morning, following an upgrade at Deutsche Bank.

The firm now rates Alcatel a Buy, from it's previous rating of Hold. It maintains a price target of €2.

Deutsche said that markets are "discounting too harsh a financial distress scenario for the company." Deutsche gives 5 reasons for such a call:
  1. Our stress test indicates that even assuming a cumulative 17% network revenue decline (similar to 2009), ALU should maintain sufficient liquidity in 2012/13.

  2. The expected €1.1 billion inflow from Genesys sale proceeds in Q1 should provide a material liquidity boost.

  3. Additional cash contributions to the company’s US pension plans are likely not required in 2012.

  4. The company’s ~€900m in combined 2012 & 13 debt maturities could potentially be rolled over.

  5. ALU could further dispose assets to raise cash if required.
Deutsche further commented, "Our stress test analysis suggests limited liquidity risk in 2012&13 while a break-up at or below Nortel multiples indicates residual equity value of E2/share or 61% upside."


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