Tellabs Remains Neutral - Analyst Blog
16 May 2013 - 12:00AM
Zacks
We reiterate our long-term Neutral
recommendation on Tellabs Inc. (TLAB). The company
reported disappointing financial results for the first quarter of
2013. Both the top line and the bottom line fell below the Zacks
Consensus Estimate. Meanwhile, the stock price of Tellabs declined
46% in the last year and is currently trading at the low-end of its
52-week price range. We believe that this low-level of valuation
may act as a cushion for further downslide of the stock price.
Why the
Reiteration?
Tellabs is facing serious problems
in its core wireless backhaul solutions segment. AT&T
Inc. (T) was the major customer for its 8800 multi-service
router. However, AT&T decided to upgrade its network with pure
Ethernet solutions since the company is aggressively deploying 4G
LTE networks. As a result, AT&T is not using Ethernet routers
of Tellabs now. AT&T historically generated 35% of the
company’s total sales and 40% of the Data product revenues. In the
first quarter of 2013, Data product revenues of Tellabs were
down 52.6% year over year.
Moreover, Tellabs’ worldwide
reputed high-margin digital cross-connect products continued to
show a downtrend. The board of directors has decided to stop
dividend payment in the first quarter of 2013. Management provided
a weak financial guidance for the ensuing second quarter.
Nevertheless, management has taken
several strategic decisions to restructure Tellabs’ business model
emphasizing on the mobile Internet sector, including mobile
backhaul solution, IP-packet optical solution and Tellabs’ Insight
Analytics Services.Tellabs is aggressively targeting the booming
mobile Internet markets since its legacy switching products are
losing relevance.
Other Stocks to
Consider
Tellabs currently has a Zacks Rank
#4 (Sell). However, other stocks in the same industry that are
worth considering include ShoreTel Inc. (SHOR) and
Ubiquiti Networks Inc. (UBNT). Both these stocks
currently carry a Zacks Rank #1 (Strong Buy).
SHORETEL INC (SHOR): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
TELLABS INC (TLAB): Free Stock Analysis Report
UBIQUITI NETWRK (UBNT): Free Stock Analysis Report
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