Verizon (VZ) Nails Earnings…What’s the Closest Cousin?

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October 28, 2008

In light of Verizon’s (VZ) success, I’m starting to wonder if other telecom outfits are on a similar path. Not that one stock makes a sector any more than one day makes a trend, but there are some surprisingly cheap stocks in the group…even by telecom standards. Take a look, but keep reading.

Company	Market Cap	P/E	ROE %	Div. Yield %	Debt to Equity	Price to Book	Net Profit Margin (mrq)	Price To Free Cash Flow (mrq)
AT&T Inc.	145.44B	10.887	12.159	6.5	0.682	1.293	10.306	85.052
China Mobile Limited	146.33B	9.786	27.763	4.4	0.083	2.458	27.919	181
China Unicom Hong Kong Limited	16.69B	9.943	12.592	2.3	0.037	1.149	7.934	19.44
China Telecom Corp. Ltd.	23.73B	7.151	10.457	3.7	0.444	0.722	13.97	19.702
Nippon Telegraph & Telephone C	28.40B	4.09	8.958	1.9	0.667	0.358	6.768	-5.098
America Movil S.A.B. de C.V.	41.96B	9.717	44.01	2.1	0.686	4.149	20.879	NA
Siemens AG	45.77B	4.698	14.074	3.5	0.492	1.14	7.163	42.56
Deutsche Telekom AG	59.64B	57	1.978	9	1.193	1.213	2.605	25.517
France Telecom	62.05B	9.023	20.099	11.6	1.387	1.676	10.17	32.446
NTT DoCoMo, Inc.	66.86B	11.791	12.898	0	0.123	1.477	14.827	-39.255
Verizon Communications Inc.	71.42B	12.294	11.65	7.3	0.847	1.404	7.801	111.617
Vodafone Group plc	86.38B	8.212	9.179	12.2	0.336	0.697	18.232	44.837

American Movil has long been a favorite of mine - they dominate South America. I was surprised to see France Telecom’s numbers too…nice dividend, and they can actually afford to pay it. However, China Mobile - a company I’ve touted before - looks set to impress everyone. On that note…

I have buy signals on none of these charts - not even Verizon (VZ) after today. Though the fundamentals are ‘there’, it’s much easier to buy good companies when their stocks are rising rather than when they’re falling. (Remember, values are only half the story.)

By the way, the average P/E of the major telecom stocks above is 12.88. Standard and Poor’s estimated the whole group’s (all market caps) P/E would be 10.7 in 2008, and 9.33 in 2009. That’s a pretty high bar to get over, though some of these companies will manage to do it. However, the ones that do are going to have to nail it on both fronts….growth, and margins. Verizon thinks they’re on track to do it - its forward-looking P/E is 9.83. Earnings growth is a decent 11.8%, but that’s based on an optimistic period from mid-2008….before the economy got nasty. Still, it may well deserve to be the leader of the pack.

Something else to consider though….debt is the name of the game for a lot of these companies. If the credit market really is frozen - and so far it appears to be - then these companies with near-term debt/loan needs are going to hit a roadblock. Now all of a sudden all those foreign telecoms look a little healthier.

Again though, I have no technical buy signal…just some interesting news from Verizon.

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