NEW YORK (TheStreet) -- Alcatel-Lucent (ALU) shares were gaining 6% to $4.40 Thursday on news it is in talks to sell its phone division to China Huaxin.

The French telecommunications company said it received a 268 million euro ($362 million) bid from China Huaxin that would give the investment firm a majority stake in its phone unit. Under the proposed deal, Alcatel-Lucent would keep a 15% stake in the phone unit.

Alcatel-Lucent expects to sign the deal in the second-quarter, and close it by the third-quarter pending regulatory approval.

News of the bid comes along with the company's fourth-quarter earnings report. In the quarter, Alcatel-Lucent posted a net profit of 134 million euros, or 5 cents a share. That's down from 1.56 billion euros, or 69 cents a share in the year-ago quarter. Revenue fell 4.1% in the quarter to 3.93 billion euros.

Must read: Alcatel-Lucent (ALU) Moving On Heavy Volume In The Pre-Market Hours

TheStreet Ratings team rates ALCATEL-LUCENT as a Sell with a ratings score of D. TheStreet Ratings 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%.