Will Alcatel-Lucent Keep Soaring in 2014?

After more than tripling in 2013, Alcatel-Lucent has investors hopeful about better prospects for the telecom equipment industry. But does the stock have further to climb? Find out about it here.

Jan 9, 2014 at 12:30PM

Alcatel-Lucent (NYSE:ALU) soared in 2013, with shares more than tripling thanks to a long-awaited rebound in the telecommunication equipment industry. But with Cisco Systems (NASDAQ:CSCO), Nokia (NYSE:NOK), and several other competitors doing their best to take advantage of favorable conditions as long as they last, can Alcatel-Lucent jump out to equally impressive gains in 2014?

2013 was a year of rebuilding at Alcatel-Lucent, with the company having to take several difficult steps in order to ensure its long-term success. With investors now seeing Alcatel as having gotten over the toughest initial phase of its turnaround, the next step will be to see how the company does in capitalizing on strength in the telecom-equipment industry going forward. Let's take a closer look at Alcatel-Lucent's prospects for 2014.

Stats on Alcatel-Lucent

Average stock target price

$4.73

Full-year 2013 EPS estimate

($0.59)

Full-year 2014 EPS estimate

($0.02)

Full-year 2013 sales growth estimate

6.4%

Full-year 2014 sales growth estimate

2.1%

Forward P/E

NM

Source: Yahoo Finance. NM = not meaningful due to negative earnings estimates.

What's next for Alcatel-Lucent in 2014?
As you can see above, analysts believe that Alcatel-Lucent has only limited upside from current share-price levels, with their average target price representing just a 2% gain above yesterday's closing share price. That's similar to views on Nokia, where analysts actually have a target below the current share price, and Cisco merits only about 5% upside from where shares trade now.

G

Source: Wikimedia Commons.

What 2013 did for Alcatel was to make it a legitimate player in the telecom equipment industry again in the eyes of those who follow the industry closely. Just last month, analysts at Citi argued that Alcatel could end up taking market share from Cisco in the router space. With Alcatel having come out with new technology designed to help users improve the programmability of their enterprise networks through software-defined networking, Cisco's proprietary switching technology could be at risk. Moreover, large new equipment contracts in China and Latin America, including a key role in China Mobile's 4G network, have helped bolster Alcatel's competitiveness in the industry, putting Cisco and its peers on the defensive.

Still, Alcatel has a long way to go before it can declare final victory. Debt still represents a major overhang on the company's financials, and with net losses expected through this year, it'll be tough for Alcatel to take many big steps toward solving its debt problems. Nevertheless, if more big deals keep coming in, then the path to profitability might take less time than investors currently expect, and that could put Alcatel in position to start paying down its debt faster.

Moreover, some are concerned about the ambitious goals of Alcatel's so-called Shift Plan, which involves the company repositioning itself to focus more on ultra-broadband access and Internet-protocol networking. Just this morning, twin negative comments came from two different analyst firms, with one arguing that Alcatel doesn't have large enough operations in mobile networks and that its wireline and optical businesses don't have any true growth prospects. Yet with share prices arguably factoring in expected high growth rates, anything short of ideal performance could leave shareholders wanting more.

In the end, Alcatel's success will rely on its ability to outperform Nokia, Cisco, and other companies in catering to the needs of its customers. In particular, if Europe starts to emerge from its recession, then the resulting increase in capital activity on the continent could help it more than its rivals, pointing to even more success in 2014 and beyond.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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