Telefonica to Modify Latin American Businesses to Aid Sales

In order to supplement top-line growth, Telefonica, S.A. TEF is mulling to restructure its Latin American businesses, while remaining focused in other key European markets and the United States. With a major upheaval in the cards in eight Latin American markets in which it operates, including Mexico, Colombia and Argentina, the company aims to “reinvent” itself amid a challenging macroeconomic environment.

The radical restructuring process is likely to feature an “operational spin-off”, whereby the company will create two separate business entities, namely Telefonica Tech and Telefonica Infra. While Telefonica Tech will involve clubbing cybersecurity, the Internet of Things and cloud computing businesses, Telefonica Infra will include the portfolio of communications towers and other infrastructure assets.

Telefonica intends to conduct a strategic review of the business reorganization plan, and is also keen to seek potential merger and acquisition opportunities. Notably, the company has secured interests from various industries for its communication infrastructure properties, which generate a steady cash flow.

With the successful creation of the new units for digital technology and infrastructure assets, Telefonica expects to generate more than €2 billion ($2.20 billion) a year in additional revenues by 2022.

Such strategic steps seem to be the call of the hour as the fourth-largest telecom firm in Europe is struggling to achieve a healthy growth momentum. Telefonica reported lackluster third-quarter 2019 financial results, due to the depreciation of Brazilian Real and Argentine Peso coupled with the provision for restructuring costs. For the September quarter, the Spanish telecom giant’s net loss was €443 million or loss of €0.10 per share ($492.5 million or 11 cents per share) against net income of €1,139 million or €0.21 per share in the year-ago quarter. The decline was primarily due to the provision for restructuring costs and depreciation of Brazilian Real and Argentine Peso against Euro.

The stock has lost 12.1% year to date compared with the industry’s decline of 26.1%.

Telefonica currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include Qualcomm Incorporated QCOM and Ubiquiti Inc. GOGO, sporting a Zacks Rank #1 (Strong Buy) and PCTEL Inc. PCTI carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Qualcomm has long-term earnings growth expectation of 14%. It delivered an average positive earnings surprise of 8.7% in the trailing four quarters, beating estimates on each occasion.

Ubiquiti has long-term earnings growth expectation of 9.4%. It delivered an average positive earnings surprise of 16.1% in the trailing four quarters, beating estimates thrice.

PCTEL delivered an average positive earnings surprise of 150.6% in the trailing four quarters, beating estimates on each occasion.

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