- Nippon Telegraph & Telephone (NTT -1.3%) makes Morningstar's list of "no-moat, high-uncertainty" stocks to avoid, at least until they come way down in price.
- The company's got nice value in its stake in NTT DoCoMo (DCM), but its fixed-line business is struggling -- which would be less of an issue if you weren't able to invest directly in DoCoMo.
- "We assign no economic moat to NTT," says Morningstar's Dan Baker. "The business has generated a return below its weighted average cost of capital for each of the past seven years, and we expect this to continue for the next five years."
- Most fixed-line business have narrow moats because cost barriers tend to make them natural monopolies, but this is "less so" for NTT, since regulators allowed competitors into its last-mile local loop net on the cheap.
- "This, along with favorable government tax and interest treatments for fiber rollouts, encouraged NTT and competitors to aggressively roll out fiber," he writes. "Japan has a high population density with significant apartment living, which makes it more economical for more than one operator to roll out fixed-line services."
- ADRs for NTT have appreciated 50% over the past year; ADRs in DoCoMo have gained 34.4% over that time span.