Unlike other communications entities trading at small cap prices who used to be blue chips such as Sprint-Nextel (NYSE: S
) and Nokia (NYSE: NOK
), Alcatel-Lucent (NYSE: ALU
) is profitable.
For the first time since Alcatel and Lucent merged in 2006, the company is in the black. Profits for 2011 were over $1 billion. As a result, Alcatel-Lucent is up more than 25% over the last week of trading. By contrast, during the past 52 weeks has fallen more than 50%.
In a recent article in the Financial Times
, the present financial situation of Alcatel-Lucent was detailed. In the Financial Times
piece, "Alcatel-Lucent," it was noted that, even with the recent rise in share price, the stock is still "at just one-sixth of their 2007 high." As such, the Financial Times article concluded that, if a business strategy is not developed that moves the company forward, Alcatel-Lucent "...will become a takeover or break-up target,"
Between Sprint-Nextel (S). Nokia Corporation (NOK) and Alcatel-Lucent, it is, by far the most attractive takeover target target or break-up candidate. It is actually making money. Earnings per share growth is positive.
The balance sheet of Alcatel-Lucent is particularly attractive. The price-to-book sales ratio is 0.23. The price-to-cash ratio is 1.02. From these, a buyer would purchase the company for basically the cash on-hand and at one-fifth the cost of annual sales.
What makes Alcatel-Lucent particularly attractive is its price-to-earnings growth ratio. Legenday investor Peter Lynch places a premium on this as it measures the cost of future earnings. A 1 is considered to be adequate. The price-to-earnings growth ratio of Alcatel-Lucent is 0.92.
The Great Recession has not been kind to Alcatel-Lucent (ALU), Sprint-Nextel (S) or Nokia Corporation (NOK). It is difficult for techs to recover. The example of Nortel stands before all investors. But, now that Alcatel-Lucent is making money with such enticing numbers on its balance sheet and income statement, a buyer could be attracted by the appealing assets and the brand name.