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Tickers in this Article: TLAB, NRTLQ, T, TRID
Despite a difficult quarter and lower capital spending from its customers, Tellabs (Nasdaq:TLAB) remains a value play in the technology sector due to its large cash balance, which could cushion the company from the effects of the major economic contraction. Tellabs manufactures networking and telecommunications equipment for sale to carriers, original equipment manufacturers and government agencies. Transport, broadband and services comprise its three segments. (The price-to-book ratio (P/B ratio) can be an easy way to determine a company's value, but it isn't magic! Read more in Value By The Book.)

Earnings Report
Tellabs reported fourth quarter 2008 GAAP earnings per share (EPS) at 3 cents, on revenues of $408 million. Excluding charges, the company reported an EPS of 9 cents, which beat analyst estimates of 5 cents. Tellabs also set Q1 2009 revenue guidance in the $345 million to $375 million range, which falls below analyst expectations.

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Cash Hoard
Tellabs ended the quarter with a cash and marketable securities balance of $1.1 billion, or $2.90 per share. Some value investors see this as putting a valuation floor below the stock price, which is around $4.20 per share.

Tellabs Q4 Ended
January 2, 2009
(millions, except per share)
Cash & Equivalents
Marketable Securities
Weighted Average Shares
Cash Per Share
A large cash cushion and low debt can be huge advantages during a downturn in which the entire telecom equipment sector has struggled for some time. Nortel Networks (OTC:NRTLQ) filed for bankruptcy in mid-January 2009. It is not yet known whether or not the company will emerge or be liquidated.

Although a large cash balance and low debt can be reassuring to investors, there is no guarantee that a company's stock price will not trade below its cash balance per share. Trident Microsystems (Nasdaq:TRID) reported a cash and marketable securities balance of $230 million, or $3.76 per share, at the end of September 2008. The stock closed on January 29 at $1.79 per share. Trident's Q2 2009 earnings conference call is scheduled for February 2 at 5pm Eastern.

Flat Growth
While the technology sector is known for rapid growth in earnings and revenue, Tellabs did not see growth even during times of economic expansion. Instead, its revenues declined slightly over the last few years as illustrated in the chart below.

Tellabs Annual Revenue 2005-2008

Bottom Line
Tellabs and other telecom equipment companies have been hurt by a slowdown in spending by large telecom carriers. AT&T (NYSE:T) reported in its most recent quarter that it would cut capital spending in 2009 by 10% to 15% from the previous year. AT&T, a large customer for Tellabs, represented 16% of its revenues in fiscal 2007. Although Tellabs' most recent quarter was not great, its large cash balance and excellent balance sheet could make it a safer play during the economic downturn. (Find out how the current economic cycle affects businesses both small and large in The Impact Of Recession On Businesses.)

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