Is Alcatel-Lucent Likely to Outperform?

With shares of Alcatel-Lucent (NYSE:ALU) trading at around $1.66, is ALU an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

CEO Ben Verwaayen will be departing once a new CEO is put in place. Most investors are pleased by the news of his departure. However, this doesn’t mean that a new CEO will do any better. A lot of Alcatel-Lucent’s situation stems from the industry at large.

Regardless of the reason for the stock’s poor performance over the past few years, FY2012 revenue was down 5.7 percent compared to FY2011. The company also swung back to a loss in 2012. For Q4, there was a net loss of 80 cents per ADS on $5.3 billion in revenue. Also for Q4, the company saw year-over-year revenue declines in the network segment and enterprise business. Gross margins also decreased by 40 basis points. On the other hand, S3 segment revenue increased and operating expenses decreased.

Alcatel-Lucent is in the midst of an aggressive cost-cutting program. Perhaps most important is that Alcatel-Lucent is planning on exiting unprofitable partnerships. Only 25 percent of the company’s outsourcing contracts are profitable at the moment. This strategy will likely lead to lower revenues and stronger profits. Some traders might look at this as a negative, but if you’re looking at the actual business, it’s a wise move.

Let’s take a look at some important numbers prior to forming an opinion on the stock…