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Morningstar: Avoid overvalued, no-moat NTT

Jan. 13, 2016 7:17 PM ETNTT DOCOMO, INC. (DCMYY) StockNTT, DCMYYBy: Jason Aycock, SA News Editor
  • 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.

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