Tellabs, Inc. (TLAB) is slated to release its first quarter 2011 results on Tuesday, April 26, before the opening bell. The current Zacks Consensus Estimate for the first quarter is pegged at a loss of 3 cents, representing an annualized growth of -125.76%.
With respect to earnings surprises over the trailing four quarters, Tellabs has outperformed the Zacks Consensus Estimate for all the three quarters except the last quarter where it missed the Zacks Consensus Estimate by 6 cents. The average earnings surprise was a positive 0.80%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last three quarters.
Fourth Quarter Recap
On January 25, 2011, Tellabs reported its fourth quarter 2010 financial results. Total revenue of $410.5 million was up 5.4% year over year but below the Zacks Consensus Estimate of $418 million. Higher revenue in the Broadband segment was partially offset by lower revenue in both Transport and Services segments.
On a GAAP basis, net loss in the fourth quarter of 2010 was $10.9 million or a loss of 3 cents per share compared with a net income of $62.1 million or an income of 16 cents per share in the prior-year quarter. Adjusted (excluding special items) EPS in the reported quarter was 2 cents, significantly below the Zacks Consensus Estimate of 8 cents per share.
Agreement of Estimate Revisions
In the last 30 days, out of the 18 analysts covering the stock, 1 analyst increased its EPS estimate for the first quarter of 2011 while none reduced their estimates. Similarly, for the second quarter of fiscal 2011, out of the 17 analysts covering the stock, 1 analyst increased its EPS estimate upward but none decreased it downward.
For fiscal 2011, in the last 30 days, out of the 19 analysts covering the stock, 1 analyst increased its EPS estimate but 1 analyst decreased its estimates. Likewise, for fiscal 2012, out of the 16 analysts covering the stock, 1 analyst decreased its EPS estimate while none increased their EPS estimates.
Magnitude of Estimate Revisions
During the last 30 days, the Zacks Consensus Estimate was in line with the current estimate of a loss of 3 cents in the first quarter of 2011 and was also break-even in the second quarterof 2011. Similarly for fiscal 2011 and 2012, the Zacks Consensus Estimates were in line with the current estimates at 3 cents and 12 cents, respectively.
In the previous quarter, Tellabs reported EPS of 2 cents, which was 6 cents below the Zacks Consensus Estimate. The current Zacks Consensus Estimates for the ongoing quarter as well as for the upcoming quarter contains a 0.00% upside potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2011 and 2012, the Zacks Consensus Estimate downside potential is 100.00% and 50.00%, respectively.
The company is facing serious problems with its key customer AT&T (T), which accounts for 35% of total revenue in 2010. We believe Tellabs will continue to lose businessess from AT&T as depicted by its extremely weak revenue outlook for the first quarter of 2011. The company is finding it increasingly hard to market its core growth products. Moreover, Tellabs is also facing severe competitive pressure from large rivals such as Cisco Systems, Inc. (CSCO) and Alcatel-Lucent (ALU).
We, thus, maintain our long-term Underperform recommendation forTellabs. Currently, Tellabs has a Zacks #3 Rank, implying a short-term Hold rating on the stock.