We reiterate our long-term Neutral recommendation on Tellabs Inc. (TLAB). The company reported disappointing financial results for the third quarter of 2013. Both the top and the bottom lines were significantly lower than the respective Zacks Consensus Estimate.
Why Kept at Neutral?
Tellabs is targeting the growing mobile Internet market since the company’s legacy switching products are gradually losing relevance. Management is currently emphasizing on mobile backhaul solution, IP-packet optical solution and Insight Analytics Services. However, we remain concerned that the global macroeconomic fluctuations may hinder its pace of recovery.
In the reported quarter, Tellabs suffered severe top-line setback, which declined 24.9% year over year. All the four reporting segments of the company witnessed sales decline. Moreover, revenue fluctuation indicates tougher times for the company. Apart from a steady decline in North American revenues, the international revenues also declined significantly.
Meanwhile, Tellabs has decided to become a private entity. On Oct 21, 2013, Tellabs declared that the company has entered into a definitive merger agreement with private equity firm, Marlin Equity Partners, which will acquire all outstanding shares of Tellabs for $2.45 per share in cash. The total deal size will be approximately $891 million. This deal is expected to close by the fourth quarter of 2013 and is not subject to a financing condition.
Other Stocks to Consider
Tellabs currently carries a Zacks Rank #4 (Sell). Nevertheless, there are other stocks in the same industry which are performing well. These include ShoreTel Inc. (SHOR), Ubiquiti Networks Inc. (UBNT) and Mitel Networks Corp. (MITL). While both ShoreTel and Ubiquiti have a Zacks Rank #1 (Strong Buy), Mitel has a Zacks Rank #2 (Buy).
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