Jim Cramer is the co-founder and the chairman of the TheStreet.com, Inc. Jim Cramer’s TheStreet.com lists their top stock picks in each industry day by day. I have analyzed five of their top telecom picks from a fundamental perspective, adding my O-Metrix Grading System where possible. Here is a fundamental analysis on the five best telco stocks picked by The Street:
Chungwa Telecom (NYSE:CHT): Chungwa has just declared its quarterly earning results. As of the Aug 30 close, the company was trading at a P/E ratio of 18.6, and a forward P/E ratio of 16.2. Analysts estimate a 0.4% annualized EPS growth for the next five years, which sounds conservative when its 14.31% EPS growth of past five years is considered. With a profit margin of 23.2%, and a dividend yield of 4.32%, Chungwa Telecom is an attractive stock for dividend lovers.
SMA20, SMA50, and SMA200 are 1.60%, 2.09% and 18.01%, respectively. The company returned 69.2% in a year, while it is trading only 4.24% lower than its 52-week high. Target price is $27.80, indicating a 20.1% downside potential. O-Metrix score is 1.35, and institutions own only 7.47% of the stock. P/B is 2.3, and P/S is 4.3, both of which are strong red flags. However, operating margin (27.1%) and debt-to equity ratio (0.0) are strong green flags. The stock is fairly overpriced. Hold if you own it, but buying is risky for me.
AT&T Inc. (NYSE:T): AT&T and T-Mobile merger has been blocked by the Justice Department. The telco titan shows a trailing P/E ratio of 9.0, and a forward P/E ratio of 11.6, as of the Aug 30 close. Estimated annual EPS growth for the next five years is 4.4%. Profit margin in 2010 was 16.2%, while it offered a 5.81% dividend last year.
The stock returned 4.9% in the last twelve months, and its O-Metrix score is 4.95. Debt-to assets ratio is slowly going down for the last five quarters. Target price indicates an about 17.7% increase potential, and it is currently trading 9.04% lower than its 52-week high. Debt-to equity ratio is 0.5, far better than the industry average of 3.1. Gross margin is 56.9%, whereas earnings increased by 57.08% this year. AT&T is a dividend pick for the next five years (full analysis here). Moreover, it has a four-star rating from Morningstar. I would not ignore this stock.
BCE Inc. (NYSE:BCE): BCE beat analysts estimations by 4 cents in Q2 2011. The largest Canadian telephone operator, as of Aug 30, has a P/E ratio of 14.4, and a forward P/E ratio of 12.2. Analysts expect the company to have a 7.0% annual EPS growth in the next five years, which is reasonable when its 4.32% EPS growth of past five years is considered. Although profit margin (10.5%) is slightly better than the industry average of 10.1%, BCE has an enjoyable dividend of 5.31%.
The stock returned 27.9% in a year, and it has an O-Metrix score of 4.62. Target price implies a 3.1% downside potential, whereas the stock is trading only 0.45% lower than its 52-week high. BCE has a remarkable gross margin of 71.7%. Debt-to equity ratio is 1.2, way better than the industry average of 3.1. Yields are growing consistently. SMA20, SMA50, and SMA200 are 4.05%, 2.93% and 9.56%, respectively. The stock has a great momentum since Dec, 2008. I would wait for a pullback.
Telecom Argentina (NYSE:TEO): Telecom Argentina recently declared its Q2 2011 results. As of Aug 30, the company was trading at a P/E ratio of 8.35, and a forward P/E ratio of 7.5. Five-year annual EPS growth forecast is 2.0%. With a profit margin of 13.8%, and a dividend yield of 9.54%, Telecom Argentina is a magnificent stock for dividend lovers.
Its O-Metrix score is 7.28, while target price implies a 16.7% upside movement potential. The stock is currently trading 13.68% lower than its 52-week high, whereas it returned 22.2% in a year. Debt-to assets ratio has landed within the last five years. ROE is 38.6%, and debt-to equity ratio is 0.0, both of which are solid green flags. Earnings increased by 37.72% this year, and 30.10% this quarter. ROA, ROE, and ROI are 20.06%, 38.62% and 35.40%, respectively. Gross margin is 50.7%. Telecom Argentina is a trustworthy profit maker in the long term.
HickoryTech Corp. (OTCPK:HTCO): A stock repurchase plan has been announced by HickoryTech’s board of directors recently. The Minnesota-based HickoryTech shows a trailing P/E ratio of 10.7, and a forward P/E ratio of 11.5, as of Aug 30. It had an 6.91% annual EPS growth in the last five years. Profit margin in 2010 was 7.3%, while shareholders enjoyed a 5.60% dividend.
Target price is $9.50, indicating an about 0.2% upside potential. The stock is currently trading 21.27% lower than its 52-week high, whereas it returned 23.1% in the last twelve months. Yields are growing slowly. Institutional transactions have increased by 31.90% in the last twelve months, whereas debt-to assets ratio is hovering around alarming rates. Earnings decreased by 24.11% this quarter. While SMA200 is -0.74%, SMA50 is -8.98%. P/B is 3.0 and operating margin is 12.5%, both of which are worse than their industry averages. Analysts give a 2.0 recommendation for HickoryTech (1=Buy, 3=Sell). I do not think that adding this stock to portfolios would be a good move.
Data obtained from Finviz/Morningstar and is current as of Aug 31.
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Disclosure: I am long T.