Manish, William, & Sarah
CURRENT HOLDINGS




AT&T
Verizon
China Mobile Ltd.
NII Holdings
0%
0%
2.41%
0.98%
SUGGESTED HOLDINGS
• Buy:


AT&T
NII Holdings
2.14%
0.27%
• Sell

China Mobile Ltd. 2.41%
 Smallest
company of the three with a
market cap of 3.93B
 Competes in a foreign, niche market in
South and Latin America
 Has a high beta of 2.02 and behaves
more like a growth stock
 Is a young company with limited
historical data.
 Growth:
 Credit:

History:
• Spin off of Nextel
• Rapid growth in Latin
and Central America
• Downturn in profits
associated
w/unemployment and
Mexico problems (N1H1,
drug trafficking
decreased tourism)
2009
Projected
Sales
Projected
Earnings
5.27B
350M
2006
ROE
GPM
72%
2010
2011
4.80B
320M
2007
4.20B
250M
2008
2.7
3.2
72%
73%
 Valuation measures:
• Historical price ratios—the ratios have currently
contracted, most likely due to the economy
• Future valuations—as the economy improves, the
ratios should expand
 Relative to the industry and
• The ratios have contracted
 Target price: $33.86
 Major
S&P 500
determinants of value: operating
margin on service revenues, depreciation
expense and capital expenditures
Relative to
Industry
P/Trailing E
High
Low
Median
Current
Target
Multiple
Target E, S, B, Target Price
etc/Share
3.2
0.15
1.4
0.19
P/Forward E
2.2
0.04
1.3
0.04
P/B
7.9
1.3
4.4
1.5
P/S
3.3
0.9
2.0
1.1
P/CF
5.7
1.2
2.7
1.5
EntValue/EBIT 4.10
DA
P/Trailing E
3.2
1.06
2.67
1.28
0.53
2.0
0.63
P/Forward E
2.3
0.60
1.4
0.62
P/B
4.7
0.8
2.9
0.8
P/S
3.4
0.8
2.1
0.8
P/CF
3.0
0.4
1.7
0.5
EntValue/EBIT 2.92
DA
P/Forward E
34.3
0.55
1.89
0.67
6.7
22.5
9.3
15.9
2.5
40.30
P/S
5.4
0.5
3.2
0.7
2.0
33.7
65.66
P/B
14.4
1.2
8.3
1.7
5.0
13.9
69.32
P/EBITDA
20.38
1.98
12.82
2.95
7.9
8.0
63.00
P/CF
32.8
2.8
18.7
4.1
11.4
5.7
65.54
 Buy
0.27% of NIHD to bring the holding
up to 1.25% of the total SIM
 Primary catalysts
• Valuation: 80%/20% DCF/Valuation model gives
a 1 year target price of $33.86
 Risks:
• Double Dip recession (high beta)
• Political uncertainty
 China
Mobile provides a wide variety of
mobile communication services in 31
provinces in China
 Largest wireless provider in the world by
customer
 In January 2009, the company started
offering 3G services
 Beta: .91
 Sell
2.41% of CHL
 Primary Catalyst: successful 3G network
 Risks:
• High penetration rate
• Strong competition in Chinese market
• Market in certain large cities showing signs of
maturity
• iPhone?? Potential deal between Apple and
China Unicom (competitor of China Mobile)



Largest telecom company in US ( Market cap $147.68
billion)
Best brand in Telecom - Ranked no. 1 company in
telecom sector by fortune magazine (11 times in last 14
years)
Business Segmentation
•
•
•
•

Wireline Services – Voice and Data (55% of total revenues)
Wireless Communications and Services (39% of total revenues)
Advertising and publishing (4% of total revenues)
Other Segment (2% of total revenues)
Major competitors - Verizon, Sprint Nextel Corp. and Tmobile USA, Inc.
($MM)
2008
2007
2006
2005
2004
Revenue
$124,028
Net Income
Trend
$118,928
$63,055
$43,848
$40,733
Up
$12,867
$11,951
$7,356
$4,870
$4,487
Up
EPS
2.17
1.95
1.89
1.42
1.78
Up
Total Assets
$265,245
$275,644
$270,634
$145,632
$110,265
Up
Dividend
1.61
1.47
1.35
1.3
1.26
Up
Capital Expenditure per year
$25,000
$20,000
$15,000
$10,000
$5,000
$0
2008
2007
2006
2005
2004
Current Price
Implied equity value/share
Target Price
Upside to DCF
$24.45
$36.27
$26.99
48.35%
Discount Rate
Terminal
Grow
th
Rate
9.5
10
10.5
11
11.5
12
12.5
2.5
40.23
37.46
35.03
32.88
30.98
29.28
27.75
3
42.02
38.94
36.27
33.94
31.88
30.06
28.42
3.5
44.09
40.65
37.69
35.13
32.90
30.92
29.17
4
46.55
42.64
39.33
36.50
34.04
31.89
30.00
4.5
49.50
45.00
41.25
38.08
35.35
33.00
30.93
5
53.10
47.83
43.51
39.91
36.87
34.26
31.99
5.5
57.60
51.29
46.23
42.09
38.63
35.71
33.20
Absolute
Valuation
Median
Current
#Your
Target
Multiple
*Your
Target E,
S, B,
etc/Share
Your
Target
Price
(F x G)
P/Forward E
16.0
8.5
12.5
2.01
25.13
P/S
2.1
1.1
1.3
21.82
28.37
P/B
2.2
1.5
1.7
16.27
27.66
P/EBITDA
5.23
2.89
3.4
8.46
28.76
P/CF
6.7
3.9
4
6.27
25.08

Buy 2.14% of AT&T
• Primary catalysts
 Valuation: 80%/20% DCF/Valuation model gives a 1 year target price of
$34.14
 Brand name, Market Cap and ability to form alliance- (Apple iPhone 3G)

Pros:
• 2008 annual report marked
 Consolidated revenues up by more than 4 percent to $124 billion in year.
 Reported earnings per share grew by 11.3 percent to $2.16 per share.
 Returned $15.6 billion to stockholders through dividends and share
repurchases.
 Delivered strong cash flow - 25th consecutive year of dividend growth

Cons:
• Slow growth due to cut throat competition and worsening economy
 Buy
AT&T (2.14%)
• Very large upside, largest telecom company in
the US
 Buy
NII Holdings (0.27%)
• Niche market, upside.
 Sell
China Mobile (2.41%)
• Reaching its maturity, small downside,
increasing competition