On Jan 17, we downgraded our recommendation on
Vodafone Group Plc
) to Underperform. We believe the company is facing top-line
pressure from its transition to data from voice & text in
While this shift bodes well for the long term, it poses a
significant near-term spending burden on network platform upgrade
and promotional activities. In addition, we are wary of declines
in service revenues and subscriber count, specifically in the
The Zacks Consensus Estimate for fiscal 2014 is pegged at
$2.38. The stock currently carries a Zacks Rank #4 (Sell).
The Zacks Consensus Estimate for Vodafone's fiscal 2014 slid
two cents in the past 30 days to $2.38. There was no positive
estimate revision over the last 60 or 30 days, but one estimate
was revised downward in the last 60 days indicating a cautious
outlook on the company.
We believe weak economic conditions have forced consumers to
switch to cheaper alternative services offered by competitors.
This will likely have negative implications on the company's
future operating performance. Consequently, in fiscal 2014,
management expects EBITDA margin (excluding M&A and
restructuring costs) to fall marginally on a year-over-year basis
due to the ongoing weak economic environment in Europe.
Vodafone reached an agreement with
Verizon Communications Inc.
) to sell its 45% interest in Verizon Wireless for $130
billion. With the influx of this capital, the company aims to
further expand in other key markets like India and Germany.
However, Verizon Wireless was a lucrative source of dividend
payments for Vodafone. The proposed deal to sell Verizon Wireless
stakes to Verizon Communications would perhaps mean an exit from
one of its legacy markets, North America, and a deeper focus on
its growing business in emerging markets. However, we believe
that with Vodafone's European operations facing troubles, and
emerging markets like India and Africa at their nascent stages of
development, the call to do away with its position in the U.S.
could prove critical.
Better-performing stocks in the sector include
Fairpoint Communications, Inc.
), each with a Zacks Rank #2 (Buy).
FAIRPOINT COMM (FRP): Free Stock Analysis
KT CORP (KT): Free Stock Analysis Report
VODAFONE GP PLC (VOD): Free Stock Analysis
VERIZON COMM (VZ): Free Stock Analysis Report
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