What Is The Market Missing On Vodafone?

While Vodafone Group Plc (ADR) VOD might be a difficult company for many investors to fully understand, Bernstein analyst Dhananjay Mirchandani believes this is what could drive upside.

Mirchandani maintains an Outperform rating on the stock with a price target of £265.

What Are Investors Not Seeing?

Vodafone, which currently trades in line with other stocks on the European exchange, should have a higher EBITDA multiple, according to Mirchandani. “Based upon our forecasts, Vodafone will outgrow sector EBITDA and that of our covered companies on a 3-year CAGR. These growth expectations are a function of 1.5 percent revenue growth in addition to cost reduction measures, something few large-cap European names can boast of,” said Mirchandani.

Further, Bernstein’s sum-of-the-parts valuation showed that nearly every single stock in the European market is incorrectly valued. “The renewed optimism (in Germany) in mobile on the back of both improved mobile network quality and the flow-through of cost reduction efforts deserves a premium to O2D,” Mirchandani said. Vodafone also trades in line with Telecom Italia, which has been de-rated by Bernstein.

Finally, if a deal materializes with Liberty Global plc - Class C Ordinary Shares LBTYK, this could provide an additional 20 percent appreciation opportunity for the stock price.

Vodafone was trading at £221.20 during Friday’s market session.