Here's Why Vodafone Should Be on Your Watchlist

Telecom operator Vodafone Group (VOD) recently highlighted concerns about rising inflation and increasing economic instabilities that could impede its growth. However, given the surging demand for telecom services and increasing digitization, telecom giants are investing extensively in upgrading their services to fulfill customer demand for rapid deployment of 5G connectivity. In addition, considering VOD’s discounted valuation and robust financial performance, we think the stock could be a great addition to your watchlist. 

Vodafone Group Public Limited Company (VOD) is a multinational telecommunications company. The company provides mobile services and fixed-line services such as internet, television (TV), voice, and convergence services. The company’s shares have gained 4.8% over the past month and 3.3% over the past six months to close its last trading session at $15.59.

The company anticipates rising inflation and a challenging economic environment will limit its profitability this year and impede its deal making efforts. However, with the transition to hybrid work arrangements and cloud-based solutions, the demand for telecommunication services and the need for upgrades has grown dramatically over the past year. To keep up with customer desires, telecommunications firms like VOD are investing in next-generation communication infrastructure and the speedier rollout of 5G connections. Analysts expect the worldwide telecom services market to reach $2.47 trillion by 2028, registering a CAGR of 5.4%.

Here's what could shape VOD's performance in the near term:

Positive Developments

In April, VOD and Sky launched social broadband pricing for low-income UK families, as VOD extends its social tariffs mobile contracts. Social tariffs are provided to 4.2 million universal credit consumers. Vodafone stated that it anticipated the initiative would assist households severely impacted by the cost-of-living problem. Its Voxi network will provide unlimited 5G Internet, calls, and texts to benefit recipients for £10 for up to six months.

Also, VOD intends to avoid traffic accidents by launching a massive mobile alert system that provides real-time updates on the nation's highways. The mobile operator's new network aims to reduce traffic congestion and travel times by delivering real-time data on incidents and delays to auto navigation systems and smartphone apps. The technology's developers believe it might someday prevent accidents by warning a driver's information system of pedestrians ready to walk out onto the road.

Robust Financials

During the fiscal year ended March 30, 2022, VOD's total revenue increased 4% year-over-year to €45.6 billion ($47.94 billion). Its operating income increased 11.1% year-over-year to €5.7 billion ($5.99 billion). The company's profit for the year grew 389.6% from the year-ago value to €2.62 billion ($2.75 billion), while its EPS grew significantly from the prior-year quarter to €7.20c.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 15.09x, 9.9% lower than the industry average of 16.74x. Also, its trailing-12-month EV/Sales of 2.09x is 4.9% lower than the industry average of 2.20x. Moreover, VOD's forward Price/Cash Flow of 3.35x is 62.8% lower than the industry average of 8.99x.

POWR Ratings Reflect Solid Prospects

VOD has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. VOD has a B grade for Stability and Value. Its stock beta of 0.70 is consistent with the Stability grade. In addition, the company's lower-than-industry multiples are in sync with the Value grade.

Of the 46 stocks in the A-rated Telecom – Foreign industry, VOD is ranked #21.

Beyond what I stated above, we have graded VOD for Sentiment, Growth, Quality, and Momentum. Get all VOD ratings here.

Bottom Line

VOD has exhibited robust financial performance in the last earnings release, and given its ongoing efforts to improve operational efficiencies, the firm is well-positioned to capitalize on expanding market trends. In addition, given its discounted valuation and the company's fundamental strength, we think the stock could be a great addition to your watchlist.

How Does Vodafone Group Public Limited Company (VOD) Stack Up Against its Peers?

VOD has an overall POWR Rating of B, which equates to a Buy rating.  Check out these other stocks within the same industry with A (Strong Buy) ratings: Telekom Austria AG (TKAGY), KT Corporation (KT), and Internet Initiative Japan Inc. (IIJIY).

VOD shares were trading at $15.45 per share on Monday morning, down $0.14 (-0.90%). Year-to-date, VOD has gained 6.45%, versus a -20.04% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.


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