Don't Hang Up on Vodafone

The following excerpts explain why Zacks senior telecom sector analyst David Weissman, CFA remains bullish on Vodafone Group, Plc. (VOD), the international wireless carrier:

'We maintain our Buy recommendation for Vodafone, the largest revenue generating international wireless carrier. We expect the firm to carry on delivering solid operating results, while increasing shareholder returns through higher dividend payments and share repurchases. The company maintains a healthy dividend payout ratio of 60%.

'Meanwhile, momentum is also building for the company's 3G (Third Generation) wireless services and Vodafone is gaining market share in most of its key markets. Furthermore, the company is focusing on opportunities in untapped emerging markets, such as South East Asia to foster growth. Recent acquisitions and divestitures are forecasted to provide operational efficiency and expand its top-line revenue.

'The stock is trading at 15.6x our fiscal year 2008 EPADR estimate, which is at a discount to the S&P 500 and other European peer averages. We believe investors remain cautious about the ongoing divestiture and acquisition activities by the company.

'However, it is our view that the valuation level may not fully reflect the potential growth from VOD's entry into India and other less saturated mobile markets. Also, 3G services in Europe may create improved revenue growth per subscriber as the company faces challenges with increasing its subscriber base in this developed market.

'We believe VOD's financial prospects remain attractive relative to many other large-cap telecom operators. In addition, a continued increase in dividend payout is expected to provide appropriate downside support. Our target price of $41 is based on 17x our fiscal year 2008 EPADR estimate, at a slight discount to our peer group comparison, as the company harnesses 3G technology across its markets and proliferate its services into India.'

Litigation Keeps Altria a Sell

Zacks senior consumer industry analyst Steven Ralston, CFA is keeping the shares of cigarette manufacturer Altria Group, Inc. (MO) a Sell, especially as its price has crept up in recent weeks. Here are some of the reasons why:

'Altria Group is the leading domestic tobacco company. The company generates significant cash flow and has a high dividend yield. However, the company is engaged in numerous tobacco liability suits. Several large punitive damage awards have been upheld by appellate courts, especially the $50-million judgment paid out in the Boeken case after the U.S. Supreme Court refused to hear the case.

'In addition, potential negative litigation is expected in Canada. Finally, weak volumes in the Czech Republic, Germany, and Poland are concerning. The stock is rated a Sell. Altria's stock has traded in a P/E multiple range of 6 to 18 over the last 10 years.