Wireless communication has become an integral part of life, with your cell phones becoming as significant as what you eat for breakfast. Here I present 5 telecom stocks, leaders in their respective business segments and/or geographic regions, ranging from wireless to landline to internet. I recommend a buy on four out of five stocks presented below, and a wait-and-watch strategy on the fifth.
Vodafone (VOD) is the world’s second largest cell phone company, and trades as American depository receipts on the NYSE. Vodafone also owns 45% of Verizon Wireless, the leading wireless provider in the United States. Since 2010, Vodafone has been on a selling spree, offloading its stakes in many foreign entities, such as its 3.2% stake in China Mobile for $6.5 billion, under pressure from major stockholders to generate more revenues from its non-core businesses. In April 2011, Vodafone sold its interest in French company SFR to Vivendi for $11.3 billion.
With an enterprise value of close to $185 billion, Vodafone is currently trading near the $30 mark with a price earnings multiple of 12 times, lower than its key competitor AT&T (T), at 15 times. In February 2012, Vodafone will receive a payment of $4.5 billion from Verizon Wireless as part of one time dividend payout, which it has already committed to be distributed among its shareholders.
CenturyLink (CTL) is the third largest local carrier the United States in terms of lines provided as of December 2010. CenturyLink is trying hard to break into the more competitive business segments, such as voice and Internet data services and cloud computing services, signaled by its acquisition of a much bigger rival, Quest Communications, and Saavis, a cloud hosting company, both in 2011. After the acquisition of Quest Communications, CenturyLink has doubled its customer base in the United States.
Trading just below the $40 mark, CenturyLink reported a quarterly revenue growth of a mammoth 162%, which however, was due to the addition in revenues from Quest Communications. The company provides a dividend yield close to 8%, which it sources from its robust cash from operations of $4 billion and cash per share close to $2. CenturyLink currently trades at a price earnings multiple of 20 times as compared to its peers such as and Frontier Communications (FTR), which is priced at 33 times.
America Movil SAB de CV (AMX) is a worldwide wireless telecommunication giant known for its TracFone subsidiary in the United States. America Movil has a nearly 250 million strong subscriber base across 17 countries, with about 27 million landlines currently in operation. The prepaid Tracfone services (which are sold via Wal-Mart stores and are targeted towards low-end customers) grew about 15% year on year for the most recent quarter. The control of the company is in the hands of Carlos Slim, currently the richest person in the world.
The stock is currently trading above the $20 mark at a price earnings multiple of 13 times, compared to Telefonica Moviles SA at 22 times. The cell phone business forms the majority of America Movil’s revenues throughout Latin America and Brazil, in addition to the dominant 70% market share in Mexico. America Movil has recently purchased Telefonos de Mexico for $6.5 billion and Telmex International for $1.4 billion in view of increasing competitiveness in the telecom industry and demand for better and unique services.
Telefonica, S.A. (TEF) is one of the largest telecommunication service providers in the world, offering its services primarily in Europe and Latin America, with the Latin American customer base forming 64% of its total base, accounting for a total of about 50% of revenues. As of September 2011, Telefonica had become the largest operator in South American region, due to an increase of about 6% in the customer base compared to the same quarter previous year.
Telefonica is currently near the $17 mark, near its 52 week low ($16.56), and well above the book value of just over $5. Telefonica is one of the cheapest telecom stocks traded on the NYSE with a price earnings multiple just below 5 times, as compared to its American counterparts such as AT&T with 15 times. Telefonica has further expanded in Central and South America, a move which will definitely add more to $85 billion worth of revenues (ttm).
Clearwire Corporation (CLWR), my single hold pick, is a company majority owned by Sprint which provides services to both retail and wholesale customers in the United States and Europe, covering 130 million people under its network. In the news recently for raising millions in equity capital markets and renewing its agreement with Sprint, the stock is quite active in reaction to these news. The stock saw an upside of almost 50% in the past 2 months, since October. Clearwire Corporation is currently trading close to $2 per share.
Per the renewed agreement with Sprint in December 2011, Clearwire will gain $1.6 billion in exchange for using their WiMax network in 2012 and 2013, and I believe that the stock will see an upside due to Sprint’s declaration for the use of Clearwire’s spectrum for rolling out Apple’s iPhone services. According to its latest 10-Ks, Clearwire Corporation owns about $15 billion worth of spectrum.