Lucent Takes Punches

Friday morning's coverage of Lucent Technologies played up the perils of forecasts. Money awarded Lucent the No. 6 position on its roster of the best investments for 2000: "You have a management that is making the right moves," telco analyst Ned Brines told the magazine.

Not quite. On Thursday Lucent announced that after 15 quarters of beating estimates, its earnings for the December quarter would miss estimates by a whopping 30 percent. Morningstar stock analyst Pat Dorsey calmly reported on the debacle, calling management's candor during its conference call laudable but no mask for "internal management errors of positively gargantuan proportions."'s Herb Greenberg dubbed the company's balance sheet "one of the great financial fake-outs of recent time."

While the financial press rushed in with hindsight, some journalists and analysts questioned whether the bad news made Lucent a buy. "Lucent's shares have sold off so sharply that investors would be wise to seriously consider bottom-fishing," Dorsey advised. "After taking into account the lowered estimates, the stock now trades at about 35 times this year's expected earnings per share. This is not an unreasonable price to pay - assuming, of course, that Lucent fulfills its promises to get things back on track in the latter half of the year."

"Lucent goofed, but keep it all in perspective," wrote ZD Interactive Investor's Larry Dignan. "Lucent is likely to rebound in the second half and shares will head higher." That sounds like a prediction vague enough to survive an end-of-the-year review.

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