Investment bank UBS maintained its recently upgraded “buy” rating on Tellabs Inc. on Tuesday after the telecom networks company released its fourth-quarter 2007 earnings.
That was because UBS is predicting Tellabs will be part of M&A activity in 2008. Industry rumors have speculated for the past year that Tellabs would be acquired, but disappointing quarterly earnings throughout 2007 quashed any real activity on that front.
Now, despite a 78 percent drop in net income, UBS expects “this could be the year Tellabs gets acquired,” wrote Nikos Theodosopoulos in a Jan. 16 note to clients. He pointed to the resignations of two CEOs since 2002, “no obvious internal replacement, a low-growth industry, and low stock valuation” as reasons for that possibility.
Tellabs declined to comment Tuesday on the speculation.
“For competitive reasons, Tellabs doesn’t discuss its strategic plans or rumors about them,” a spokesman told xchange.
UBS kept its buy recommendation even after Tellabs reported its fourth-quarter 2007 numbers. The Naperville, Ill.-based networks company saw its net income plunge 78 percent, but it did provide higher-than-expected sales numbers and solid guidance for 2008.
Tellabs reported earnings of $6.3 million, or 1 cent per share, as compared to $29.1 million, or 7 cents per share, a year earlier.
On the positive side, however, revenue increased 3.2 percent, reaching $469.1 million from $454.7 million in the fourth quarter of 2006.
Still, Tellabs said it will lay off about 225 more employees to help it save $100 million by the end of this year. It already shed 125 workers last September.
Tellabs also will take charges of $12 million to $14 million in 2008. Approximately $8 million of that will happen in the first quarter.
Tellabs stock was trading at $6.15, down 23 cents, early Tuesday afternoon.
UBS posits that Nortel Networks or Nokia Siemens would be likely Tellabs buyers, given Tellabs’ position as a key supplier to Verizon Communications Inc.
Tellabs www.tellabs.com
UBS www.ubs.com
