Third Avenue Nears 10% Stake In Tellabs

Third Avenue Management, a value investing fund which was founded by Marty Whitman in 1990 and has over $10 billion in assets under management, has acquired a total of 35 million shares of Tellabs, Inc. (NASDAQ:TLAB). Tellabs is a $1.1 billion market cap communications company which provides broadband and networking equipment; according to the recent filing with the SEC, Third Avenue owns 9.6% of the outstanding shares. Our database of 13F filings shows that at the end of June Third Avenue had owned 23 million shares of the stock. Research more stocks that Third Avenue owned.

Earlier this month Tellabs, Inc. released its 10-Q for the third quarter of the year. Revenue has been down throughout 2012: a 20% decline for last quarter versus the third quarter of 2011, bringing the company’s top line for the first nine months of 2012 16% below the figures from a year earlier. To its credit, Tellabs has reacted by slashing expenses. Q3 2011 included a large impairment expense, but even excluding that operating expenses are down 36% with gross margins only slightly down. As a result the company was nearly profitable last quarter, a milestone it did not come close to in the first half of 2012 or in the same period in the previous year. Tellabs has also announced that it has further restructuring plans in the works.

AQR CAPITAL MANAGEMENT

As can probably be inferred, Tellabs, Inc. doesn’t have enough profits on a trailing basis for its P/E to be meaningful, and Wall Street analysts only 2 cents of EPS for 2013. The company started paying a dividend of 2 cents per share in 2010, and has been good at making those quarterly payments, which gives it a dividend yield of 2.7%. It’s good to see the company turning around, and perhaps even moderate profits will give Tellabs value potential, but for now we don’t have enough confidence to recommend buying. Cliff Asness’s AQR Capital Management had a small position in the stock at the end of the second quarter (see Cliff Asness’s favorite stocks).

The obvious market leader in the communications business is Cisco Systems, Inc. (NASDAQ:CSCO). Cisco carries trailing and forward P/E multiples of 11 and 8, respectively; its earnings have been up recently but even if its growth slows those figures are quite low. For these reasons, we had thought that Cisco made for a good value stock and we still think that. Read more about why we think that Cisco is a good buy.

Tellabs can also be compared to Alcatel Lucent SA (NYSE:ALU), Riverbed Technology, Inc. (NASDAQ:RVBD), and Juniper Networks, Inc. (NYSE:JNPR). Alcatel-Lucent reported a 5% decline in revenue in the third quarter versus a year earlier, and that stock trades at a forward P/E of 28 even after a 51% decline in the last year. We don’t think that it’s a good stock to buy. Riverbed and Juniper have quite similar profiles in terms of their valuations relative to earnings figures: their trailing P/Es are between 40 and 50, while they trade at 15 and 16 times their respective forward earnings estimates. Note that this indicates that the sell-side expects strong growth in the bottom line in 2013 (as, in a way, it does for Tellabs). Having a moderate forward P/E is good, but we generally prefer to be seeing most of those earnings up front. Juniper also experienced an 80% decline in earnings last quarter from the same period in 2011, so we’d particularly avoid that stock.

Third Avenue has likely put considerable time and effort into determining when Tellabs will break into profitability and to what degree it will prosper from that point. We’re hesitant, however. Analyst expectations are fairly low and we see little reason to buy the stock rather than the more attractively priced Cisco.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!