Tellabs Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of networking gear specialist Tellabs (Nasdaq: TLAB  ) plunged as far as 11.5% overnight on average trading volumes.

So what: Tellabs reported third-quarter earnings last night, beating bottom-line expectations with a $0.01 net loss per share but missing revenue targets by a country mile. Management blamed slow North American sales but remained enthusiastic about prospects abroad.

Now what: Tellabs counts AT&T (NYSE: T  ) , Verizon (NYSE: VZ  ) , and Clearwire (Nasdaq: CLWR  ) as its three largest customers, quarter in and quarter out, and the Americans just aren't building network infrastructure like they used to. The quicker these important clients get back to nuts-and-bolts investments instead of squabbling over merger deals or waiting for the economic headwinds to subside, the better for Tellabs. For now, this stock is lagging the Dow Jones (INDEX: ^DJI) index by a very wide margin in 2011 after losing 36% of its New Year's value. It's cheap -- but for good reason.

Interested in more info about Tellabs? Click here to add it to My Watchlist.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.


Read/Post Comments (2) | Recommend This Article (1)

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  • Report this Comment On October 25, 2011, at 5:08 PM, SimchaStein wrote:

    Anders,

    I'm confused, by your last comment, "It's cheap -- but for good reason". It the stock overly discounted? Or is it appropriately discounted for risk? Do you think they will recover sales soon? Is it a short term problem - their customers being distracted?

  • Report this Comment On October 26, 2011, at 11:47 AM, TMFZahrim wrote:

    Fair enough, @SimchaStein. I meant that Tellabs has run into real, tangible customer issues here, and it's not unreasonable to get bearish on the stock today. Is it long or short term? Hard to tell. Even if it's technically a short-term halt in network buildouts, who's to say that ALU or ERIC or Huawei won't stand ready to steal contracts from Tellabs when we get rolling again?

    Only time will tell if this is truly a fundamental business issue or not. That's why the watchlist is so important; keep an eye on this stock for more clues.

    Anders

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