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UPDATE: JPMorgan Upgrades Alcatel-Lucent (ALU) to Overweight

July 2, 2014 7:17 AM EDT
Get Alerts ALU Hot Sheet
Price: $3.46 --0%

Rating Summary:
    14 Buy, 6 Hold, 5 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 10 | New: 11
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(Updated - July 2, 2014 11:05 AM EDT)

JPMorgan upgraded Alcatel-Lucent (NYSE: ALU) from Neutral to Overweight with a price target of €3.30. Analyst Sandeep Deshpande noted potential upside to €4.40.

"It takes time to turn around a company that has not been successfully turned around since ’06 M&A, hence our caution early in Alcatel’s restructuring plan. With the restructuring proceeding at a faster pace than guided originally and the stock having pulled back because some investors have taken profits, not because progress has stalled, we upgrade the stock to Overweight (from Neutral). We maintain our Dec-14 target price at €3.30 but show in the note there is potential upside to as much as €4.4 or more if the company becomes a pure-play core networking business," said Deshpande.

"ALU’s router business is its crown jewel. According to Delloro, Edge routing where Alcatel-Lucent is #2 globally has grown at a 12.5% CAGR over the last decade. Though growth will be lower than that in future, it will still be an attractive growth end market. Though ALU does not break out margin in this business, we think it is almost certainly targeting 20%+ margin in the Shift plan. ALU is assiduously cutting costs as part of this restructuring plan. If it does reach the 12.5% margin and €7bn revenue target of this plan, we believe this business alone would be worth more than the current €7.4bn market capitalization," he added.

For an analyst ratings summary and ratings history on Alcatel-Lucent click here. For more ratings news on Alcatel-Lucent click here.

Shares of Alcatel-Lucent closed at $3.53 yesterday.



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