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We upgrade our recommendation on Tellabs Inc. to Neutral. The company reported better-than-expected financial results for the second quarter of 2013, surpassing both the top and the bottom line of the Zacks Consensus Estimate.

Why the Upgrade?

We upgrade Tellabs primarily based on its low level of current valuation, which plummeted nearly 43% in the last year and is currently trading at the low-end of its 52-week price range. We believe that this low level of valuation may prevent further downslide of the stock price.

Tellabs has decided to substantially focus on the growth areas of mobile backhaul solutions, optical networking solutions and business services solutions. Mobile backhaul solutions support the massive demand for high-speed mobile Internet and video facilitating telecom customers to undergo a smooth transition to 3G or the next-generation 4G networks. Optical networking solutions allow the carriers to meet the growing demand for bandwidth for metro-Ethernet networks. Business services solutions (Insight Analytics), on the other hand, serve large enterprises that require reliable multimedia services.

During the second quarter of 2013, Tellabs won a series of new contracts. The company added 4 new customers for Tellabs 7100 and 7300 packet-optical transport systems. In the Data segment, the company won another 4 contracts for mobile backhaul solutions. In the Access segment, the company received a new contract from enterprise customer Deltek, for Tellabs Optical LAN. 

Other Stocks to Consider

Tellabs currently has a Zacks Rank #2 (Buy). Other stocks in this segment, which are also doing well, include Juniper Networks Inc. (JNPR - Analyst Report), Zhone Technologies Inc. (ZHNE - Snapshot Report) and Ubiquiti Networks Inc. (UBNT - Analyst Report). Ubiquiti currently has a Zacks Rank #1 (Strong Buy) while both Juniper and Zhone have a Zacks Rank #2 (Buy).

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