Jefferies & Co. reiterated its buy rating on shares of Alcatel-Lucent (NYSE: ALU) ahead of first quarter earnings results, with a price target of 5 euros.

We've been checking in with industry contacts ahead of Alcatel-Lucent’s EPS conference call next Friday morning, May 6. Our checks suggest the organization will report solid Q1 results, said George Notter, an analyst at Jefferies.

Notter said he still likes the risk/reward in the stock heading into the first quarter earnings call late next week. Moreover, he believes that his short- and intermediate-term thesis is still very much intact. More precisely, he expects that operating results will benefit from accelerating sales of software upgrades for wireless networks.

As Notter discussed at the time of his upgrade on Alcatel-Lucent shares, EVDO Rev A software is used to upgrade existing 2G CDMA cell sites to 3G and/or upgrade existing 3G CDMA sites for additional data capacity. Similarly, HSPA+ software upgrades are used to expand mobile data capacity on existing WCDMA cell sites.

As one might expect, these software sales flow through the company’s financials at extremely high margins. Notter expects investors have historically over-looked the importance of EVDO/HSPA+ software sales to Alcatel-Lucent’s financials.

Notter noted, of course, that first quarter results for Alcatel-Lucent are typically seasonally softer than fourth quarter. His views of first quarter results are put into that context. First, he expects that Verizon Wireless had to invest quite heavily to expand 3G capacity around their February 11th iPhone 4 launch (he believes that the wireless operator also spent significantly on EVDO upgrades during fourth quarter).

Verizon’s first quarter mobile data metrics looked very good -- they activated 2.2 million Verizon iPhones during the quarter -- despite shipping the product for only half of the quarter.

Notter said Alcatel-Lucent, of course, has roughly half of Verizon’s CDMA base station footprint. They’ll benefit directly from all the new mobile data traffic that will come onto the network via EVDO. Similarly, the operator saw significant strength in sales of Android phones during first quarter.

Anecdotally, Notter has been hearing that AT&T Wireless’ infrastructure demand (i.e., LTE + WCDMA upgrade work) continues to be very strong. His checks in the wireless infrastructure supply chain indicate that AT&T’s first quarter infrastructure demand is almost equivalent to fourth quarter's strong demand profile -- in a seasonally weaker quarter. Also, the outlook -- based on his checks -- is even better for second quarter.

Notter said that there was an article in the Wall Street Journal last week indicating that the company was exploring the sale of its Enterprise Networking business. Any monetization of this business would further shore up the balance sheet (a positive for investors).

For first quarter, the brokerage is looking for Alcatel-Lucent to generate 3.95 billion euros in sales and 0.03 euros in earnings per share. The brokerage's 2011 revenue and earnings figures are unchanged at 17.35 billion euros and 0.39 euros per share, respectively. For 2012, the brokerage's estimates remain 18.06 billion euros and 0.42 euros per share, respectively.

Alcatel-Lucent remains our favorite idea in the Communications Infrastructure group right now. We continue to rate the shares Buy, said Notter.

Alcatel-Lucent's American Depository Receipt closed Thursday's regular trading up 0.82 percent at $6.14 on the NYSE.

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