NEW YORK (TheStreet) -- Shares of Alcatel-Lucent were gaining 7.6% to $4.68 Tuesday morning after Nokia confirmed that it is in talks to acquire the communication equipment maker. Shares of Nokia were falling 3.1% to $8.04. In a joint statement the two companies said they are "in advanced discussions with respect to a potential full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent." The companies added that there is no certainty that the discussions will result in an agreement of a transaction. In a note to investors Citi said the merger would be a wise strategic move for Nokia due to Alcatel-Lucent's presence in the U.S., according to CNBC. "We believe Alcatel's and Nokia's wireless businesses are a great strategic fit since ALU is as strong in the U.S. as NSN is in Europe and Japan; both have strong positions in China," Citi analysts wrote. Separately, TheStreet Ratings team rates ALCATEL-LUCENT as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation: "We rate ALCATEL-LUCENT (ALU) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, a generally disappointing performance in the stock itself and generally higher debt management risk." Highlights from the analysis by TheStreet Ratings Team goes as follows: ALCATEL-LUCENT reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ALCATEL-LUCENT continued to lose money by earning -$0.02 versus -$0.74 in the prior year. This year, the market expects an improvement in earnings ($0.23 versus -$0.02). The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 133.0% when compared to the same quarter one year prior, rising from $149.55 million to $348.44 million. 38.74% is the gross profit margin for ALCATEL-LUCENT which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, ALU's net profit margin of 8.80% significantly trails the industry average. The debt-to-equity ratio is very high at 2.84 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, ALU's quick ratio is somewhat strong at 1.06, demonstrating the ability to handle short-term liquidity needs. Net operating cash flow has decreased to $514.31 million or 23.28% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, ALCATEL-LUCENT has marginally lower results. You can view the full analysis from the report here: ALU Ratings Report Must Read: Warren Buffett's Top 25 Stocks for 2015
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