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Alcatel-Lucent NYSE:ALU, what is driving it higher?

CS, UBS, GS, CSCO

The Alcatel-Lucent SA ADR keeps running higher despite a dampened expectation. Back in November ALU this was a penny stock looking like it was doomed.

If Monday’s gains hold, the ADR will be up for a 5th straight day, up every day in Y 2013.

On 28 December the price was at $1.35 in New York, this stock has risen 70% since late November.

Last week there was an upgrade from Credit Suisse NYSE:CS. The rating was lifted only to “Neutral” from a prior “Underperform” rating due to a positive outlook on the company’s debt agreements.

The tide may have turned as the negative analyst crowd reached a high in early October. It was then that Goldman Sachs NYSE:GS, gave it a “Conviction Sell” rating and UBS NYSE:UBS,downgraded its rating to Sell.

Then in November came yet one more downgrade from Bernstein, cutting its rating to Underperform due to forward cash concerns.

The consensus price target from Thomson Reuters is currently down under $1.30 per ADR.

Credit Suisse now believes that the recent $1.6-B in debt now giving the company ample cash into Y 2015. The firm even suggests that Alcatel-Lucent will resume some tiny revenue growth in Ys 2013 and 2014 and it sees long-term operating margins of 3% by Y 2015 that is under the company’s forecast of 6% to 9%.

Shares of Alcatel-Lucent have really managed to come back rather strong.

The question to ask now is if this ADR has risen too far and too fast. If the company can execute on its wind-down of less profitable efforts then maybe it can achieve its own gross margin targets.

Note: Thomson Reuters is calling for revenue to be down almost 1% in Y 2013 to $18.65-B and that is after an expected double-digit sales drop in Y 2012.

If the results are this weak, then what could be driving the interest is a comparison to Cisco Systems Inc. NASDAQ: CSCO. These 2 companies are nearly impossible to compare, but that is how Wall Street traders think when you see a parabolic move like you have seen of late in Alcatel-Lucent shares.

Here is the breakdown of the comparison: Cisco is worth about $108-B in market cap and its fiscal year consensus estimate from Thomson Reuters is $48.7-B in sales. That gives the value peg at close to 2-times sales.

Alcatel-Lucent has a market cap that is nearly back up to $4-N. Its Y 2013 Thomson Reuters sales estimate is $18.65-B. If Alcatel could get its ship back in order enough that it could trade at even half the revenue multiple, say at 1-times sales, then traders would be hoping that shares could rise back up closer to $8.00/shr over the long-term.

Also note: Alcatel-Lucent was valued at $8 and $10 back in Y 2007 before the recession took its toll on the company’s many turnaround strategies.

Alcatel-Lucent’s sales were $23.9-B in Y 2008 and have been falling since. Cisco has seen its sales rise from $40-B in Y 2010 up to $48.7-N expected in Y 2013.

Short selling activity is high on ALU, and perhaps some Short-covering is partly behind this rise.

As of 14 December, the Short interest in Alcatel-Lucent was 20.02-M ADRs and that was down just a bit from the recent high at the end of November when the Short interest was 21.98-M ADRs. The high in the Short selling was back at the end of April 2012 when the Chort interest was 28.67-M ADRs.

That said, traders may chase Alcatel-Lucent up higher.

LTN Analysis Overall Short Intermediate Long
Very Bullish (0.60) Bullish (0.48) Very Bullish (0.73) Very Bullish (0.60)

Recent CandleStick Analysis Neutral

Open Gaps
Direction Date Range
up 7 Jan 2013 1.64 to 1.65
up 3 Jan 2013 1.42 to 1.46
up 14 Dec 2012 1.12 to 1.19
up 23 Nov 2012 1.02 to 1.1

Support and Resistance
Type Value Conf.
resis
supp

Nil
1.65

2
supp 1.45 4
supp 1.42 2
supp 1.39 3
supp 1.29 2
supp 1.27 2
supp 1.25 2
supp 1.23 5
supp 1.21 3
supp 1.19 6
supp 1.16 5
supp 1.11 15
supp 1.07 2
supp 1.01 5
supp 0.99 4
supp 0.93 2

Technical Indicators
Ind. Short Inter Long
EMA VBu VBu VBu
MACD VBu VBu VBu
RSI VBu
TDD Bu
Fibs VBu VBu VBu
Highs N Bu Bu
Lows Bu VBu N
Trends N N N
Stoch. VBu
VBu=Very Bullish, Bu=Bullish
N=Neutral
Be=Bearish, VBe=Very Bearish