Investing guru George Soros has been selling big telecoms recently. Specifically, he’s let go of shares of AT&T (T) and Verizon (VZ). Below we take a look at the fundamentals of these two behemoths to see if Soros is on point.
Verizon (VZ): Soros reduced his stake by 47% to 1.04 million shares in the latest full quarter. Verizon pays a hefty 5.10% dividend yield. This market leader (the company serves around 94 million subscribers, or approximately 25% of the U.S. population) already has an extremely loyal consumer base, and with Apple (AAPL) iPhone pre-orders going gangbusters thus far, we think those relationships will only grow stronger. We think this once-sleepy telecom has the potential to enter a new growth phase as it grabs market share from competitors with its adoption of the iPhone handset.
The company should be able to handle the new services demanded by customers and, on a relative basis, outperform its peers. Average revenue per customer should get a shot in the arm over the next few years as Verizon rolls out higher-revenue bundled plans and increases smartphone penetration. The company is worth $36 per share, discounted at a 10% rate. It's also worth a look for its dividend yield. Though the AT&T (T) deal does throw a curve ball at Verizon’s plans, should the deal be approved, we think it’s very likely VZ will make strategic acquisitions to maintain market share in the face of new competition.
AT&T (T): Soros reduced his stake by 37% to 1.1 million shares in the latest full quarter. AT&T has a brand value of $28.88 billion, the 10th most valuable brand name. In 2010, this company drew in $124.28 billion in revenues, which was +1.03%, after -0.81% in 2009. Moreover, the EBT margin in 2010 was 14.67%, and in 2009 it was 15.44%. GAAP EPS came in at $3.35, which was +58.02%, after -1.85% in 2009.
In 2011, analysts expect non-GAAP EPS between $2.26 (-1.7%) and $2.57 (+11.7%). In 2010, non-GAAP EPS was $2.30. Q1 2011 results come out on April 20, with analysts expecting between $0.51 and $0.62. In comparison, EPS was $0.59 in Q1 2010. AT&T shares trade with a price to sales multiple of 1.4. From 2002 to 2007, the multiples were near 2. AT&T recently announced the purchase of T-Mobile. Sprint (S) is ranked #298 with a brand value of $3.53 billion.
It recently went ex-dividend on April 6, so it is a bit late to catch this quarter’s payout. Still, this telecommunications company shows a bit of everything: High yield, sustainability (51% payout ratio) and growth opportunities if its bid for T-Mobile goes through. The 5% average five-year growth rate isn’t overly impressive, but you don’t need too much appreciation on top of the high yield. The current yield has dropped as of late, but if history turns out to be the map to the future, there shouldn’t be much concern.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Buy low and sell high is easier in theory than in practice– and that’s where we come in.At InvestmentUnderground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments with a catalyst and sell them when full value is realized. We provide detailed analysis of our strategy and help you achieve your goals of a reduced-risk trading environment. If you are fed up with volatile markets and market manipulation that put your retirement in jeopardy, join us to achieve those gains you deserve without the headache.Jordan French is the co-founder of Investment Underground along with Darius Fisher, and serves at the site’s Investment Director.Mr. French brings over 12 years of investing experience to the Investment Underground team. A lifelong value investor and admirer of the Benjamin Graham, Mr. French considers himself a research-oriented fundamental analyst. He’s constantly on the hunt for great businesses selling at a discount.Prior to founding Investment Underground, Mr. French obtained a law degree from Washington University in St. Louis and a bachelor’s degree in economics and biomedical engineering from Vanderbilt University.Darius FisherAlong with Mr. French, Mr. Fisher co-founded Investment Underground and serves as the site’s Publisher and Editorial Director.Mr. Fisher is a seasoned value investor with over 10 years of experience in top-down fundamental equity analysis. Before co-founding Investment Underground, Mr. Fisher worked as an investing analyst for the nation’s largest private financial newsletter publishers and as a political consultant with a focus on economic policy.
