The telecom sector expanded by augmenting network capacity with additional fiber and wireless deployments to meet the demand for high-speed networks in 2021. However, with purported declining interest in Wi-Fi-enabled internet and the introduction of 5G fixed wireless access (FWA), competition in the industry might increase this year.
In addition, major U.S. passenger and cargo airlines have warned of a potential catastrophe due to 5G deployments. The U.S. Federal Aviation Administration (FAA) has warned that the new technology could interfere with altimeters, which measure how far above the ground a plane is flying.
Given this backdrop, we think telecom stocks Vodafone Group Public Limited Company (VOD) and Orange S.A. (ORAN), which were recently downgraded, are best avoided. VOD was downgraded by equity analysis firm Argus Research from Buy to Hold; the firm also downgraded ORAN from Buy to Hold.
Vodafone Group Public Limited Company (VOD)
VOD operates in the telecommunication services market in Europe and internationally. The company’s offerings include mobile services that enable customers to call, text, and access data and broadband services. It is based in Newbury, U.K.
For the six months ended September 30, VOD’s revenue increased 5% year-over-year to €22.49 billion ($25.51 billion). However, its operating profit decreased 21.9% from the prior-year period to €2.62 billion ($2.97 billion). Its profit for the financial period came in at €1.28 billion ($1.45 billion), down 13% from the same period last year.
The Street’s $51.41 billion revenue estimate for the fiscal year ending March 2022 reflects a 4% year-over-year decrease.
Over the past year, the stock has declined 10% in price to close Friday’s trading session at $15.83. It has declined 4.1% over the past six months.
Orange S.A. (ORAN)
ORAN, headquartered in Paris, France, is provider of a range of fixed telephony and mobile telecommunications, data transmission, and other value-added services. The company provides services to customers, businesses, and other telecommunications operators globally.
On January 4, ORAN, through its holding company Orange Digital Investment, announced that it would invest in the ‘Move Capital I’ fund, a Kepler Cheuvreux Invest fund that supports B2B European tech companies. The investment is expected to boost Orange Business Services, but it might take some time before substantial gains can be realized from this investment.
On December 24, Orange Belgium signed an agreement with Nethys to acquire 75% minus one share in VOO SA. The acquisition is based on an enterprise value of €1.8 billion ($2.04 billion) for 100% of the capital. However, it was awaiting approvals from the European Commission.
ORAN’s revenues decreased 0.4% year-over-year to €10.51 billion ($11.92 billion) in its fiscal third quarter, ended September 30. Its revenues from France declined 4.1% from the prior-year quarter to €4.48 billion ($5.08 billion), while revenues from Europe stood at €2.58 billion ($2.93 billion), down 1.1% from the prior-year quarter.
The $1.14 consensus EPS estimate for the fiscal year 2021 indicates a 43% year-over-year decrease.
The stock has declined 4.7% in price over the past year and 2.1% over the past five days to close Friday’s trading session at $11.16.
VOD shares were trading at $16.70 per share on Monday afternoon, up $0.87 (+5.50%). Year-to-date, VOD has gained 11.86%, versus a -9.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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