Alcatel-Lucent Jumps on Credit Suisse Upgrade

Editor's note: A previous version of this article incorrectly stated that UBS gave an upgrade to Alcatel-Lucent. The Fool regrets the error.

What's going on with Alcatel-Lucent (NYSE: ALU  ) ? Its stock is jumping in the New Year, up almost 10% at market's open Friday on news that financial services company Credit Suisse (NYSE: CS  ) was upgrading it to "neutral" from "underperform." That's a 50%-plus leap in share price only three months after UBS (NYSE: UBS  ) pinned an underperform label on the telecommunications equipment maker.

The UBS rationale for the October thumbs-down was wimpy spending in Europe because of the continuing economic doldrums on the continent, a damping of the growth trend in China, and concerns about Alcatel-Lucent's debt burden. The latter, it was feared, would necessitate an asset selloff.

What's changed since then?

First of all, in mid-December the company secured a refinancing deal with Goldman Sachs (NYSE: GS  ) and Credit Suisse worth $2.1 billion, money the company will use to pay off its soon-to-mature debts, and to help pay for its restructuring plans.

The Faustian bargain Alcatel-Lucent had to make with the bankers involved putting up its large patent portfolio as part of its collateral. An important part of the company's return to profitability involves monetizing those patents more aggressively. A default on the debt would be likely to mean forfeiting those patents.

Also adding to the more optimistic outlook for Alcatel-Lucent is the possibility of selling off its submarine cable-laying ships to France Telecom (NYSE: ORAN  ) for up to $198 million, according to French newspaper Lesechos.

According to Alcatel-Lucent CEO Ben Verwaayen's remarks during the company's third-quarter earnings call, ridding itself of non-core assets is an important part of making the company more efficient and improving its margins.

But take the rating upgrade with a grain of salt. Other than good intentions stated by Alcatel-Lucent's leadership, and the breathing room the company gets with its debt refinancing, the best thing it has going for it is its R&D component led by the legendary Bell Labs. Unfortunately, innovation does not guarantee revenue.

Jumping on the Alcatel-Lucent bandwagon would be a gamble -- one that could pay off, but still speculation.


Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On January 05, 2013, at 3:21 AM, Edubrigham wrote:

    Hello Dan,

    Could you please provide more insight and reliable sources of UBS having upgraded Alcatel???

    In this day and age of the internet where no one does fact checking, all the other big news outlets are reporting the UBS upgrade besed on your article.

    Can you confirm that in your article you DIDN'T make a type O by writting UBS instead of CREDIT SUISSE??? Because on 01/03/2013 the ONLY Financial intitution who reviewed their outlook on ALU was Credit Suiss and NOT UBS!

    Thank you for your time and patience in giving me a reply

    eduardo Brigham

  • Report this Comment On January 05, 2013, at 10:33 AM, XMFDRadovsky wrote:

    Eduardo,

    You are absolutely right. I did mean to say Credit Suisse was the upgrading entity. I apologize deeply for my mistake -- a bad one.

    Thank you for pointing this out. I will see if I can get it corrected.

    Dan

  • Report this Comment On January 05, 2013, at 2:52 PM, Edubrigham wrote:

    Hi Dan,

    Thank you for setting the record straight on your article!

    It takes a man to admit his mistake. It takes a bigger man to correct it also. so kudos to you.

    As an Alcatel shareholder I know UBS will be upgrading it in the coming weeks. Its just a matter of time, as the company is finally a turnaround story (Q4 better be good!).

    Kind Regards

    Eduardo Brigham

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