Tellabs, Inc. (TLAB), Cisco Systems, Inc. (CSCO): Is This Telecom Networking Business a Good Pick Now?

In the first quarter of 2013, Alcatel-Lucent generated around £3.22 billion in revenue, 0.6% lower than the revenue in the first quarter last year. The net income dropped significantly, from £259 million to £(353) million. The operating cash flow also came in at £(358) million. CEO Michel Combes commented on its difficulty,

Free cash flow remains a challenge. Strong focus will be placed on working capital management to reverse some of the negative impact incurred this quarter.

The struggling business might be the reason for Alcatel Lucent SA (ADR) (NYSE:ALU) to have the lowest EV multiple. It is trading at $1.50 per share, with a total market cap of around $3.4 billion. The market values Alcatel-Lucent at only 3.88 times EV/EBITDA.

Cisco Systems, Inc. (NASDAQ:CSCO) is a totally different picture. With a strong global market-leading position and consistent profitability, Cisco keeps moving forward strongly. Recently, Cisco announced that it completed its acquisition of Ubiquisys, the leading company in intelligent 3G and small-cell technologies. The company reported that Ubiquisys’ small cell-expertise, combined with Cisco Systems, Inc. (NASDAQ:CSCO)’s mobility portfolio, could deliver a complete package of small-cell solutions. Cisco is trading at around $23.50 per share, with the total market cap of $125.70 billion. The market values Cisco at only 7.15 times EV/EBITDA.

Among the three companies, only Cisco Systems, Inc. (NASDAQ:CSCO) is paying shareholders dividend now, with a decent dividend yield of 2.9%, while Alcatel-Lucent and Tellabs are not paying any dividends for now.

My Foolish take

Personally, I think Tellabs, Inc. (NASDAQ:TLAB) is not a compelling stock to buy at its current trading price. With the fluctuating operating performance and high EV multiple, I would not consider Tellabs to be an investment target now. I prefer Cisco Systems, Inc. (NASDAQ:CSCO) with its global market-leading position, decent dividend yield, and a reasonable valuation.

The article Is This Telecom Networking Business a Good Pick Now? originally appeared on Fool.com and is written by Anh HOANG.

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