Lucent Technologies Inc. (NYSE/LU) is a stock that needs some major loving. This former Wall Street darling has been discarded by the herd and is now looking for some love on the Street. Trading at nearly $80 in late 1999, the stock like many others in the communications sector has been under severe pressure in recent years, facing lackluster revenue growth and anemic profits.
Lucent has also gone through its share of lawsuits. Despite some recovery in the communications sector, the area remains a difficult place to operate. The competition is fierce, pricing pressures are growing, and margins are low.
That is the reality for the communications sector, an area that remains in limbo given the current climate. So what is Lucent suppose to do? Shareholders have lost patience in the ability of chairman and CEO Patricia F. Russo in turning around the company and making it a star again.
Down 96% from its late 1999 high, the reality is investors who bought at that level or even lower will probably never recover their losses. Lucent will never be more than a capital loss for those that purchased at the higher and inflated prices.
The company is making money and its forward price-earnings multiple is reasonable, but given the slow expected growth the stock’s upside may be limited.
Given the mixed outlook for the communications sector, Lucent is trying to get a major hug from rival and also troubled France-based Alcatel SA (NYSE/ALA).
Lucent after being rejected already by Alcatel in 2001 is hoping this second attempt is met with hugs and kisses, something they love to do in France.
Alcatel is reviewing the potential merger with Lucent, but it is in the driver’s seat as its position is much better than that of Lucent. In other words, Lucent needs Alcatel more.
But for Alcatel, a merger with Lucent could give the company more exposure and an established network in the United States.
The deal if consummated could be the first of many more to come as struggling telecom companies look for ways to cut cost and compete more effectively.
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