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Alcatel-Lucent (ALU) to Report Thursday: What to Expect

NEW YORK (TheStreet) -- Alcatel-Lucent (ALU) is due to report fourth-quarter and full-year earnings before the bell Thursday. Analysts expect the French telecommunications company to return to profitability for the first time since its fourth quarter in 2011.

Analysts surveyed by Thomson Reuters anticipate net income of US$71.83 million from a net loss of $254.46 million in the September-ended third quarter. Consensus is for per-share earnings of 3 cents, compared to an 11-cents-a-share loss a quarter ago and 70-cents-a-share loss in the year-ago quarter. Revenue is expected to increase 4.4% to $5.64 billion.

Over fiscal 2013, analysts expect a per-share net loss of 55 cents and revenue of $20.18 billion.

The struggling company announced its SHIFT plan in June last year, a strategic push to strengthen its specialty in IP networking and ultra-broadband access, while reducing costs by Euro 1 billion within two years.

CEO Michel Combes has been making aggressive moves to turn the company around. By the end of 2015, the phone equipment maker will have cut 10,000 jobs, reducing fixed costs by more than 15%.

TheStreet Ratings team rates ALCATEL-LUCENT as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate ALCATEL-LUCENT (ALU) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is very high at 3.98 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, ALU maintains a poor quick ratio of 0.92, which illustrates the inability to avoid short-term cash problems.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Communications Equipment industry and the overall market, ALCATEL-LUCENT's return on equity significantly trails that of both the industry average and the S&P 500.
  • ALCATEL-LUCENT has improved earnings per share by 31.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ALCATEL-LUCENT swung to a loss, reporting -$1.45 versus $0.37 in the prior year. This year, the market expects an improvement in earnings (-$0.72 versus -$1.45).
  • 36.96% is the gross profit margin for ALCATEL-LUCENT which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -6.30% is in-line with the industry average.
  • Net operating cash flow has increased to -$150.95 million or 48.56% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 30.05%.

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