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Published byAngelica Hines Modified over 9 years ago
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Recommendation Industry Information Analysis ◦ Business ◦ Economic ◦ Financial ◦ Valuation Summation and comments
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Decrease SIM portfolio by 42 basis points to come in line with S&P 500 Reallocate funds within the Telecommunication SIM Sector
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Sector S&P 500SIM PortfolioDifference Consumer Discretionary9.11%7.51%-1.60% Consumer Staples11.94%12.23%0.29% Energy12.35%12.80%0.45% Financials14.66%6.59%-8.07% Health Care12.65%13.13%0.48% Industrial10.09%11.97%1.88% Information Technology19.04%21.97%2.92% Materials3.39%4.52%1.13% Telecommunications3.09%3.51%0.43% Utilities3.68%3.19%-0.49%
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IndustriesMarket Cap Wireless Telecom Service$12.00 Integrated Telecom Service$116.90
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Largest Companies in the Telecom Sector AT&T ◦ Former SBC merged with AT&T creating the new AT&T (USA) China Mobile ◦ Formerly China state-owned, now still state-controlled, one of two mobile phone monopolies in the entire China. Vodafone ◦ Britain's largest telecom operator. Verizon Communications ◦ US-based telecom company formed after a series of mergers. Deutsche Telekom ◦ German telecom company, also owns T-Mobile. America Movil ◦ Mexican operator controlled by the world's richest man - Carlos Slim.
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MTDQTDYTD -5.05% -7.95%
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Mature and Defensive (Industry Specific) ◦ Established networks and low maintenance costs, little need for increased capital spending. ◦ More resistant to economic fluctuations, domestic and foreign. Marketing Mix Indicators ◦ Product ◦ Price ◦ Distribution ◦ Promotion
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.85 Beta
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Demand saturated with providers New capacity ◦ 3G and 4G networks ◦ Open Interface programming
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Government Regulations Currency Fluctuations New Innovations Spectrum Availability Workforce
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Domestic and International Spectrum availability User dynamics
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Threats of New Entrants ◦ Capital intensity ◦ Ownership of a telecom license ◦ Acceptable radio spectrum Power of Suppliers ◦ Large number of vendors dilutes the bargaining power Power of Buyers ◦ Increasing choice ◦ Low differentiation ◦ Switchover costs Availability of Substitutes ◦ Cable TV, Satellite Operators, and Internet Competitive Rivalry ◦ Cut-Throat ◦ Low price and slight differentiations
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Economic FactorCorrel Unemployment-0.65 Consumer Confidence0.72 New Homes0.81 Federal Funds Rate0.74 Capital Spending0.82
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SectorGrowth Financial AnalysisSalesEarnings 5-year Growth Rate8%9% 20052006200720082009Average Net Profit Margin10.1%10.3%10.4%9.4%8.5%9.7% Return on Equity14.8%14.3%14.9%13.4%13.9%14.3% S&P 500Growth Financial AnalysisSalesEarnings 5-year Growth Rate7%0% 20052006200720082009Average Net Profit Margin8.8%9.3%8.9%6.5%6.2%7.9% Return on Equity17.6%21.0%17.0%15.0%11.0%16.3%
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Industry - WirelessGrowth Financial AnalysisSalesEarnings 5-year Growth Rate6%-19% 20052006200720082009Average Net Profit Margin11.2%10.1%6.8%1.4%1.0%6.1% Return on Equity12.3%7.6%4.9%2.7%2.2%5.9% Industry - Integrated TelecomGrowth Financial AnalysisSalesEarnings 5-year Growth Rate10%14% 20052006200720082009Average Net Profit Margin10.1%10.4%11.0%10.6%9.6%10.3% Return on Equity15.7%18.0%19.0%16.0%16.8%17.1%
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AT&T 20052006200720082009Average Net Profit Margin10.9%11.7%10.0%10.4%17.9%12.2% Return on Equity10.1%8.6%10.4%12.2%15.6%11.4% 20052006200720082009Average Total Sales $ 43,862 $ 63,055 $ 118,928 $ 124,028 $ 123,008 $ 94,576 Depreciation $ 7,622 $ 9,879 $ 21,546 $ 19,883 $ 19,661 $ 15,718 Depreciation % of Sales17.4%15.7%18.1%16.0% 16.6% Operating Margins14.1%16.3%17.2%18.2%18.5%16.9% Operating Cash FlowsPositive Operating Cashflows Verizon 20052006200720082009Average Net Profit Margin9.8%6.2%5.9%6.6%6.7%7.0% Return on Equity19.2%12.4%11.1%13.9%14.9%14.3% 20052006200720082009Average Total Sales $ 75,112 $ 88,144 $ 93,469 $ 97,354 $ 103,970 $ 91,610 Depreciation $ 14,047 $ 14,545 $ 14,377 $ 14,565 $ 15,596 $ 14,626 Depreciation % of Sales18.7%16.5%15.4%15.0% 16.1% Operating Margins19.0%15.2%16.7%17.3%17.0% Operating Cash FlowsPositive Operating Cashflows
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SectorS&P 500WirelessIntegrated P/Trailing E-33% 209%-34% P/Forward E-11%-16%NM-18% P/B-19%14%-33%-22% P/S-33%-18%-59%-33% P/CF-36%-20%-60%-29% >30% below mean – Green >0% above mean - Red
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Company ComparisonNIHDAT&TVerizon P/Forward E-28%-16%-13% P/S-58%-24%-43% P/B-71%-32%-26% P/EBITDA-64%-40%-49% P/CF-55%-36%-25%
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Slightly undervalued, Defensive (.85), Cheap relative to S&P 500 Potential growth in wireless and data division Cut throat competition in the growth areas Tightening profit margins in the wireless industry Uncertainty in global financial market
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Decrease SIM portfolio by 42 basis points to come in line with S&P 500 Reallocate funds within the Telecommunication SIM Sector Questions?
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