Stocks to Watch: Lucent Gets Hit With Downgrades; Wal-Mart Makes a Move to E-Tailing

Arguably the most striking aspect of a famous portrait of famed American banker John Pierpont Morgan is the fierce look in his eyes. It's the sort of angry look you might expect to see in the eyes of Lucent Technologies (LU) investors.

Lucent, after the close of regular trading, shocked Wall Street when it announced it expects first-quarter earnings to fall below estimates. The telecommunications-equipment giant attributed the shortfall to flat revenue growth caused by changes in customer purchasing habits, lower software revenue and lower-than-expected gross margins. The company said it expects to report earnings in the range of 36 cents to 39 cents a share, compared with 48 cents a year ago. The 29-analyst estimate from First Call/Thomson Financial was for 54 cents. Lucent said it expects revenue to be in the range of $9.8 billion to $9.9 billion, flat with the year-ago period.

The expected shortfall marks a sharp departure from the company's excellent earnings track record. Until now, Lucent has beat earnings forecasts in every quarter since it was spun off from AT&T (T) in 1996. Further, Lehman Brothers' decision yesterday morning to up the stock's target price to 95 from 90 looks unusual in light of the recent news.

Lehman downgraded Lucent to neutral from buy after the earnings warning. Lehman analyst Steven Levy, in a research note, wrote: "The downgrade is based on expectations that Lucent shares are likely to trade at a significantly lower P/E multiple until credibility and confidence are restored." The analyst also wrote that "Lucent's problems are very much Lucent-specific" and that he doesn't believe that the issues hitting Lucent "should be used by investors to condemn other systems vendors or the entire telecommunications industry."

Merrill Lynch analyst Michael E. Ching downgraded Lucent to intermediate-term neutral from accumulate. Ching wrote that he believes the shortfall was Lucent-specific. He maintained his long-term buy rating on the stock.

Salomon Smith Barney downgraded Lucent to neutral from buy.

For additional coverage of Lucent's earnings warning, check out a separate story from the TheStreet.com/NYTimes.com joint newsroom. Also see TheStreet.com's past coverage of Lucent, including an in-depth look at the company's accounting practices.

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Mergers, acquisitions and joint ventures

Ericsson (ERICY) is selling its Private Radio Systems operations to Com-Net Critical Communications of Pennsylvania for an undisclosed sum.

McLeodUSA (MCLD), a telecommunications firm, is buying Splitrock Services (SPLT), a data communications provider, for about $1.7 billion in stock.

Seagram's (VO) Universal Music Group and RealNetworks (RNWK) set a strategic pact that will enable digital music from Universal's collection of artists to be played on RealNetworks' RealJukebox. Under the pact, UMG and RealNetworks will team up in online and offline digital music marketing activities.

U S West (USW) has taken a minority equity stake in Internet services concern Netpliance.

Wal-Mart's (WMT) going hard core into e-tailing. Wal-Mart and Silicon Valley-based venture capital firm Accel Partners said they're joining forces to form Wal-Mart.com, a Palo Alto, Calif.-based, independent concern that they intend to take public.

Analyst actions

Warburg Dillon Read initiated coverage of FDX (FDX) with a hold rating.

Morgan Stanley Dean Witter upgraded Germany's SAP (SAP) to outperform from neutral.

Merrill downgraded Weyerhaeuser (WY) to intermediate-term neutral from accumulate. Merrill kept its long-term rating at buy.

Miscellany

Ticketmaster Online-CitySearch (TMCS) has named John Pleasants president.

The Inside Wall Street column in Business Week this week spotlights Maxtor (MXTR), whose stock could be hot soon because the company is poised to unveil a variety of Web-enabling and Linux storage server products and because a major PC maker is said to be in talks to buy Hyundai's 36% stake in the company. Maxtor is a hard disk drive provider for PCs.

Two other stocks garner bullish mention in the column: True North Communications (TNO), the world's sixth-largest ad agency, and @plan (APLN), which some analysts say is undervalued.

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For analysis of the market's preopen tone and trends, see the Wake-Up Call, now published separately.

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