Argus Upgrades Vodafone After A Quarter That Delivered 6 Times The S&P 500's Performance

The international telecom company Vodafone Group Plc (ADR) VOD received an upgrade from Argus after a quarter that outpaced the S&P 500 as a whole, an increased dividend and bullish projections for 2018.

Vodafone has shifted from a single-minded mobile company to a wider business that now includes “fixed broadband, video content, cloud and website hosting,” Argus analyst John Eade said in a note (check out John Eade's track record).

“For long-term investors, we think that VOD shares are suitable holdings in a diversified portfolio,” Eade said.

Argus upgraded Vodafone from Hold to Buy and has a $32 price target on the stock.

‘Solid’ Revenue Trends

Vodafone group revenue in fiscal 2017 was down 4.4 percent, a number Eade attributes to “the impact of currency headwinds.”

The company reports earnings semiannually and announced its 2017 numbers on May 16.

Adjusted EBITDA grew 5.8 percent in the last fiscal year, near the top of Vodafone’s 3–6-percent guidance number, and the company’s earnings per share was $0.86 per ADS.

The telecom provider’s 2018 guidance calls for organic EBITDA growth of 4–8 percent.

Argus raised its estimate for Vodafone’s earnings per ADS in fiscal 2018 from $0.69 to $0.94 “based on the company’s solid revenue growth trends and expectations for margin improvement, as well as currency trends,” Eade said.

“We expect revenue in [fiscal 2018] to be driven by strong new customer additions and the favorable reception of the company’s higher-priced ‘more for more’ offerings.”

Growth Through Subscribers, M&A

Vodafone’s business has grown through customers merging their fixed and mobile telecom services, Eade said.

“Project Spring,” a two-year, 26.2 billion euro investment in Vodafone’s 4G network, helped to make 4G available to 87 percent of the people in the company’s European coverage area, according to Argus.

The company has made two recent M&A moves: a 50/50 joint venture agreement with Liberty Global in the Netherlands in February 2016, and a combination of its New Zealand operation with Sky Network Television Ltd.

“The deal has been put on hold, however, as New Zealand regulators have raised questions about competition,” Eade said of the latter deal.

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Vodafone's Growth Prospects Already Priced In At This Valuation  _______ Image Credit: By Eric Wüstenhagen - Flickr: red-blue-brown in hamburg town, CC BY-SA 2.0,