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Earnings Scorecard: TELLABS Inc.

T VZ

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Following the first quarter earnings announcement on April 26, most of the analysts covering Tellabs Inc. have retained their estimates, as they remain apprehensive about the increasing competition in its core wireless backhaul solutions segment. Moreover, the company has already lost a significant amount of business from its most important customer AT&T Inc. (T - Analyst Report).

First Quarter Highlights

On a GAAP basis, net loss in the first quarter of 2012 was $139.8 million or 38 cent per share compared with a net loss of $24.1 million or 7 cents per share in the year-ago quarter. Adjusted (excluding special items) loss per share in the reported quarter stood at 6 cents, significantly higher than the Zacks Consensus Estimate of a loss of 3 cents.

Quarterly total revenue of $257.9 million was down 20% year over year, and well below the Zacks Consensus Estimate of $277 million. Sales deteriorated across all the reporting segments of Tellabs.

Agreements of Analysts

Of the 12 analysts covering the stock in the last 7 days, none changed the EPS estimates for the third and fourth quarters of fiscal 2012.

Likewise, for fiscal 2012, out of the 13 analysts covering the stock, none changed the EPS estimates in the last 7 days. Similarly, for fiscal 2013, in the last 7 days, none of the 14 analysts covering the stock raised or lowered the EPS estimate.

Currently, the Zacks Consensus EPS Estimate for the second quarter of fiscal 2012 stands at breakeven, which indicates a growth of 100.00% year over year. Similarly, for the third quarter of fiscal 2012, the Zacks Consensus EPS Estimate is pegged at 1 cent, reflecting 191.67% year-over-year increase.

Likewise, for fiscal 2012, the Zacks Consensus EPS Estimate is pegged at a loss of 1 cent indicating a gain of 88.46% from 2011. However, for fiscal 2013, the Zacks Consensus EPS Estimate stands at 6 cents, reflecting an increase of 523.02%.

Magnitude of Estimate Revisions

In the last 7 days, the Zacks Consensus Estimates for the second quarter was flat compared with the previous estimate. However, estimate for the third quarter of 2012 was in line with the previous estimate of 1 cent. 

Likewise, for fiscal 2012, the current Zacks Consensus Estimates was at par with the earlier estimate of a loss of 1 cent. Similarly, for fiscal 2013, the Zacks Consensus Estimate was in line with the previous estimate of 6 cents.

Earning Surprises

With respect to earnings surprises, the company’s consistent track record in the last three quarters is expected to persist in the coming quarters. However, in the last quarter, Tellabs' reported loss fell below the Zacks Consensus Estimate by 2 cents or 66.67%.

Our Recommendation

We believe that healthy balance sheet, regular dividend payments and continuous contract wins will act as catalysts for growth for the company going forward. However, poor performance in the North American market coupled with high level of customer concentration as the company generates more than 33% of the total revenue from AT&T and Verizon Communications Inc. (VZ - Analyst Report). We therefore retain our long-term Neutral recommendation on Tellabs.

Currently, it has a Zacks #3 Rank, implying a short-term Hold rating in the near term.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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