Alcatel (ALU) Shares Plunge Below $2 as Fears Remain, Analysts Cautious

Alcatel-Lucent, S.A. (NYSE: ALU) shares are getting hammered Tuesday as traders continue to consider liquidity concerns at the communications company. Certainly giving fuel to the investor fire, a number of analyst firms recently discussed issues at Alcatel.

Following Alcatel's appearance at the firm's TMT conference in Barcelona last week, Morgan Stanley reduced its outlook for fourth-quarter 2011 revs by 10 percent. The firm cited margin pressures and a "very difficult" telecom capex environment in the current quarter. The firm belives Alcatel FP could struggle to cover pension costs, not to mention restructuring and interest payments. Total cost to Alcatel on all the fronts would be about €1 billion for the year, according to Morgan Stanley.

Alcatel would need to generate about 6 percent EBIT margins in 2012 just to maintain break even cash flow, which Morgan Stanley noted would be "difficult to achieve."

Morgan Stanley currently has an Underweight rating and €1.50 price target on Alcatel. Alcatel closed at €1.20 on the Paris exchange Tuesday.

Goldman Sachs restarted coverage on Alcatel shares with a Neutral rating and €1.60 price target Monday, suggesting the liquidity issues "likely overshadow structural gains." In the event of a US or global recession (modeled for a 10 percent sales shortfall), Goldman predicts the company could have liquidity pressures by 2013.

Also Monday, UBS highlighted Cisco (Nasdaq: CSCO), Juniper (Nasdaq: JNPR), and Huwei as possibly providing stiff competition for Alcatel moving forward into 2012.

Alcatel stock last traded at $1.59 on the NYSE, down 14.5 percent from Monday's closing price.

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