Manish, William, & Sarah
CURRENT HOLDINGSSUGGESTED HOLDINGS AT&T0% Verizon0% China Mobile Ltd.2.41% NII Holdings0.98% Buy: AT&T2.14% NII Holdings0.27% Sell China Mobile Ltd.2.41%
Smallest company of the three with a market cap of 3.93B Competes in a foreign, niche market in South and Latin America Has a high beta of 2.02 and behaves more like a growth stock Is a young company with limited historical data.
Growth: Credit: History: Spin off of Nextel Rapid growth in Latin and Central America Downturn in profits associated w/unemployment and Mexico problems (N1H1, drug trafficking decreased tourism) Projected Sales 5.27B 4.80B 4.20B Projected Earnings350M320M250M ROE GPM 72% 73%
Valuation measures: Historical price ratios—the ratios have currently contracted, most likely due to the economy Future valuations—as the economy improves, the ratios should expand Relative to the industry and S&P 500 The ratios have contracted Target price: $33.86 Major determinants of value: operating margin on service revenues, depreciation expense and capital expenditures
Relative to Industry HighLowMedianCurrentTarget Multiple Target E, S, B, etc/Share Target Price P/Trailing E P/Forward E P/B P/S P/CF EntValue/EBIT DA P/Trailing E P/Forward E P/B P/S P/CF EntValue/EBIT DA P/Forward E P/S P/B P/EBITDA P/CF
Buy 0.27% of NIHD to bring the holding up to 1.25% of the total SIM Primary catalysts Valuation: 80%/20% DCF/Valuation model gives a 1 year target price of $33.86 Risks: Double Dip recession (high beta) Political uncertainty
China Mobile provides a wide variety of mobile communication services in 31 provinces in China Largest wireless provider in the world by customer In January 2009, the company started offering 3G services Beta:.91
Sell 2.41% of CHL Primary Catalyst: successful 3G network Risks: High penetration rate Strong competition in Chinese market Market in certain large cities showing signs of maturity iPhone?? Potential deal between Apple and China Unicom (competitor of China Mobile)
AT &T -Company Overview Largest telecom company in US ( Market cap $ billion) Best brand in Telecom - Ranked no. 1 company in telecom sector by fortune magazine (11 times in last 14 years) Business Segmentation Wireline Services – Voice and Data (55% of total revenues) Wireless Communications and Services (39% of total revenues) Advertising and publishing (4% of total revenues) Other Segment (2% of total revenues) Major competitors - Verizon, Sprint Nextel Corp. and T- mobile USA, Inc.
Financials Overview ($MM) Trend Revenue$124,028$118,928$63,055$43,848$40,733Up Net Income$12,867$11,951$7,356$4,870$4,487Up EPS Up Total Assets$265,245$275,644$270,634$145,632$110,265Up Dividend Up
Sensitivity Analysis Current Price $24.45 Implied equity value/share$36.27 Target Price$26.99 Upside to DCF 48.35% Discount Rate Terminal Grow th Rate
Valuation Analysis Absolute Valuation MedianCurrent#Your Target Multiple *Your Target E, S, B, etc/Share Your Target Price (F x G) P/Forward E P/S P/B P/EBITDA P/CF
Recommendation Buy 2.14% of AT&T Primary catalysts Valuation: 80%/20% DCF/Valuation model gives a 1 year target price of $34.14 Brand name, Market Cap and ability to form alliance- (Apple iPhone 3G) Pros: 2008 annual report marked Consolidated revenues up by more than 4 percent to $124 billion in year. Reported earnings per share grew by 11.3 percent to $2.16 per share. Returned $15.6 billion to stockholders through dividends and share repurchases. Delivered strong cash flow - 25th consecutive year of dividend growth Cons: Slow growth due to cut throat competition and worsening economy
Buy AT&T (2.14%) Very large upside, largest telecom company in the US Buy NII Holdings (0.27%) Niche market, upside. Sell China Mobile (2.41%) Reaching its maturity, small downside, increasing competition