Telecom Sector
Elliot Palmer
Eric Richmond
Agenda
• Overview
• Sector Analysis
– Business
– Economic
– Financial
– Valuation
– Technical
• Recommendation
S&P Sector Breakdown
Sector
S&P 500 Weight
SIM
Weight
+/-
Consumer Discretionary
10.30%
9.31%
-1.00%
Consumer Staples
10.21%
9.04%
-1.17%
Energy
12.70%
11.54%
-1.17%
Financials
16.13%
11.74%
-4.39%
Health Care
10.70%
13.19%
2.49%
Industrials
11.15%
11.08%
-0.07%
Information Technology
18.97%
21.51%
2.54%
Materials
3.65%
3.23%
-0.42%
Telecommunication Services
2.92%
4.30%
1.38%
Utilities
3.26%
2.32%
-0.93%
Cash
0.00%
2.68%
2.68%
Dividend Receivables
0.00%
0.05%
0.05%
SIM Holdings in Telecom Sector
• Only Telecom stock in the portfolio is NIHD(NII
Holdings)
• This was a bottom five performer last month with
a downside of 6%.
• NIHD is the 5th largest holding in the portfolio
with a weight of 4.3%.
• The upside of this stock is the strong hold in
foreign markets, especially in South America.
• NIHD is a very volatile stock with a beta of 2.0
Largest Companies in the Telecom Sector of
the S&P by Industry
Wireless Telecom
Services in S&P 500
• AMT 22.35B
• Sprint 13.59B
• MetroPCS 4.72B
Integrated Telecom
Services in S&P 500
•
•
•
•
•
•
AT&T 168.23B
Verizon 101.49B
CenturyTel 13.7B
Qwest 12.93B
Frontier 9.49B
Windstream 6.41B
Sector Performance
Telecom Performance
1 Day
MTD
QTD
YTD
S&P 500
0.55%
3.35%
5.69%
5.69%
Telecom Services
0.67%
3.51%
-0.47%
-0.47%
Relative Performance
0.12%
0.16%
-6.16%
-6.16%
Business Analysis
International
Domestic
Business Analysis
International Outlook
Domestic Outlook
• Growth in developing
market
• Mature
– India
– S. America
– China
– Market is almost
completely saturated
• Fierce Competition
• High Competition
– Established Wireless
and Integrated Firms
• Tech/Telecom
distinction weakening
Business Analysis
Porter’s 5 Forces
• Rivalry
– High (ex. AT&T and Verizon)
• Threat of Substitutes
– From other industries the threat is low. Within the industry
substitutes are very high.
• Buyer Power
– Moderate (ex High exit costs on switching providers)
• Supplier Power
– Moderate (ex. Apple sets the price of the iPhone and tower companies
have the space and better set their prices)
• Barriers to Entry
– High Large built out infrastructure, high capital costs and government
regluation
Economic Analysis
Economic Analysis
Economic Analysis
Economic Analysis
Economic Analysis
Financial Analysis
Telecommunication
Financial Analysis
Telecommunication
Financial Analysis
AT&T
Financial Analysis
AT&T
Financial Analysis
NII Holdings, Inc.
Financial Analysis
NII Holdings, Inc.
Financial Analysis
AMT
Financial Analysis
AMT
Valuation (Sector)
Absolute Basis
High
Low
Median
Current
Difference in Current and
Median
P/Trailing E
26.7
9.7
16.2
17.1
0.9
P/Forward E
32.8
10.5
15.5
16.5
1.0
P/B
2.7
1.0
1.9
1.8
-0.1
P/S
2.3
.9
1.4
1.2
-0.2
P/CF
9.7
3.5
5.4
5.0
-0.4
Relative to
SP500
High
Low
Median
Current
Difference in Current and
Median
P/Trailing E
1.3
.68
.93
1.1
0.8
P/Forward E
1.4
.77
.96
1.2
0.6
P/B
1.0
.4
.7
.8
0.1
P/S
1.4
.8
1.0
.9
-0.1
P/CF
.7
.4
.5
.5
0
Valuation (Integrated Telecom Industry)
Absolute Basis
High
Low
Median
Current
Difference in Current and
Median
P/Trailing E
20.4
9.1
14.8
13.8
-1.0
P/Forward E
22.4
9.9
14.3
13.5
-0.8
P/B
3.4
1.0
2.0
1.8
-0.2
P/S
2.3
1.0
1.4
1.2
-.02
P/CF
8.3
3.5
5.4
4.8
-0.6
Relative to
SP500
High
Low
Median
Current
Difference in Current and
Median
P/Trailing E
1.1
0.58
0.84
0.88
0.04
P/Forward E
1.1
0.68
0.88
0.95
0.07
P/B
1.1
0.4
0.8
0.8
0
P/S
1.4
0.8
1.0
0.9
-0.1
P/CF
0.6
0.4
0.5
0.5
0
Valuation (Wireless Telecom Industry)
Absolute Basis
High
Low
Median
Current
Difference in
Current and
Median
P/Trailing E
P/Forward E
P/B
P/S
P/CF
175.8
286.6
15.0
5.4
49.1
12.0
14.6
.3
.4
1.6
22.9
22.7
1.4
1.4
6.1
NM
NM
1.8
1.0
7.0
NM
NM
0.4
-0.4
0.9
Relative to SP500
High
Low
Median
Current
P/Trailing E
9.4
.78
1.4
NM
Difference in
Current and
Median
NM
P/Forward E
15.8
.95
1.5
NM
NM
P/B
3.5
.2
.6
.8
0.2
P/S
2.8
.5
.9
.8
-0.1
P/CF
3.2
.2
.6
.7
0.1
Telecom Technical Analysis
NIHD Technical Analysis
AT&T Technical Analysis
AMT Technical Analysis
Recommendation
• Return to even weight with S&P
– Reduce by 130 basis points
• Diversify holdings at even weight
– Reduce NIHD to 200 basis points
– Add 90-100 basis points of AT&T or VZ
• Better opportunities in other sectors
What Questions Do You Have?