Auriga Initiates Coverage on Tellabs (TLAB) with a Buy; Favorable Risk-Reward/Potential Takeover Target
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Auriga initiates coverage on Tellabs (Nasdaq: TLAB) with a Buy. Price target $7.
Auriga analyst says, "Despite the dual pressure points from fading legacy revenues and slowing Bell spending, we find enough value in Tellabs to warrant a Buy rating at current prices. Longer term, we see four ways for shareholders to win: as top line eventually stabilizes (2H2010), the company has significant cost cutting opportunities, which could bring SG&A down by an additional 300 to 400 basis points; an improving economy will lift customer spending; new products should reaccelerate growth; and, finally, if the company continues to struggle to generate revenue growth for an extended period, an acquisition at a premium price is possible. Patience will be required for this investment but downside risk appears minimal as the net cash on the balance sheet ($3.25 per share) provides a solid floor."
"Too big to be a niche player and too small to be a consolidator, we believe the company, long term, will join a larger entity. Although previous CEOs have posited the idea to the Board of Directors, only to be rejected, we believe that if the current CEO were to conclude that consolidation would be best for shareholders, the BOD would have no choice but to consider. We see such an event as having a material chance for occurring in the next 18 months. Potential acquirers include Nokia-Siemens (NYSE: NOK) (NYSE: SI), Ericsson (Nasdaq: ERIC), Alcatel-Lucent (NYSE: ALU)."
To see more analyst ratings on TLAB Click Here.
Tellabs, Inc. is engaged in designing and marketing equipment and services to communications customers worldwide.
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