NEW YORK (TheStreet) -- Shares of Alcatel-Lucent (ALU) were gaining 6.3% to $3.54 in morning trading Thursday following reports that the French network equipment maker is in talks with Finnish competitor Nokia (NOK) about a possible merger.
Shares of Nokia were gaining 1.1% to $7.94 following the report.
The German magazine Manager Magazin first reported that talks between the two companies were taking place, citing company sources, according to Reuters. The two companies could either agree to a merger, or agree to a close cooperation, according to the report.
Alcatel-Lucent and Nokia have held similar discussions in the past before Nokia sold its handset business to Microsoft (MSFT) .
TheStreet Ratings team rates ALCATEL-LUCENT as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate ALCATEL-LUCENT (ALU) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- ALCATEL-LUCENT reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ALCATEL-LUCENT continued to lose money by earning -$0.75 versus -$1.56 in the prior year. This year, the market expects an improvement in earnings (-$0.02 versus -$0.75).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 105.0% when compared to the same quarter one year prior, rising from -$335.70 million to $16.67 million.
- 38.37% is the gross profit margin for ALCATEL-LUCENT which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, ALU's net profit margin of 0.48% significantly trails the industry average.
- ALU has underperformed the S&P 500 Index, declining 24.45% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Currently the debt-to-equity ratio of 1.81 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, ALU maintains a poor quick ratio of 1.00, which illustrates the inability to avoid short-term cash problems.
- You can view the full analysis from the report here: ALU Ratings Report