Chad Stutz
Ryan Cook
Fin 724/824
Review of Recommendations
 Overweight Telecom
 Telecoms have steady cash flows, so...
 Balance SIM growth portfolio with
“Defensive-Growth” stocks
 Structure holdings to emphasize
wireless industry
 Primary focus in emerging markets
 Add 156 bps to portfolio
SIM PORTFOLIO
 Sector Presentation earned an additional 156 basis
points for the Telecommunications Sector
Approved May 26th S&P Weight SIM Weight Overweight
Telecommunications
3.71%
3.96%
0.25%
 Currently the only stock the SIM portfolio holds in
Telecommunications is America Movil
Quantity
10,900
Security
American
Movil SA
GIC
Ticker Sector
AMX Telecom
Unit
Cost
Market
Total Cost Price
41.04 $447,341.38
Market
Value
32.85 $358,065.00
Unrealized
Gain/(Loss)
($89,276)
América Móvil, S.A.B. de C.V. (AMX)
 3rd largest wireless network operator in world
 182 mil wireless subscribers
 Largest corporation in Latin America
 Operates in 18 countries
 Primarily Wireless Company
 Fixed line operations in Central America & Caribbean
 Operates in Mexico as Telcel = #1 wireless company
 Operates in Brazil as Claro = #2 largest market
 Operates in U.S. as TracFone = pre-paid provider
Valuation Analysis: Price Multiples
AMX
Multiple
Forward P/E
Trailing P/E
P/S
ROE
Target
Absolute
Mean
Current
15.8
19.9
Per
Multiple
Share Price
12.6
3.54
44.60
12.4
3.03
37.57
3.5
1.4
26.4
39.64
26.2
21.56
30.18
AMX - Target Price & Upside
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$38.33
$43.62
13.81%
Terminal
Growth Rate
Sensitivity Analysis
2.00%
2.50%
3.00%
3.50%
4.00%
8.50%
9.66%
17.18%
26.07%
36.73%
49.76%
8.70%
6.42%
13.44%
21.69%
31.53%
43.46%
Discount Rate
8.90% 9.10%
3.37% 0.49%
9.94% 6.65%
17.62% 13.81%
26.72% 22.25%
37.68% 32.35%
9.30% 9.50% 9.70%
-2.23% -4.81% -7.25%
3.55% 0.63% -2.13%
10.24% 6.89% 3.75%
18.09% 14.21% 10.57%
27.42% 22.85% 18.60%
AMX Recommendation
 Upside of 13.81% from DCF
 Lowest DCF upside of 4 companies we reviewed
 AMX is approaching maturity stage of life cycle
 Evidenced by market saturation in major markets
 Good company, but there are better opportunities
 SELL all shares = 240 bps
NII Holdings, Inc. (NIHD)
 Originally organized in 1995 as a holding company for
the operations of Nextel Communications, Inc. in
selected international markets.
 Operates in the emerging markets in Latin America.
 Beta of 2.22 very cyclical stock.
 Reports its results of operations in U.S. dollars,
therefore changes in exchange rates can affect earnings
reports.
Valuation Analysis: Price Multiples
NIHD
Multiple
Forward P/E
Trailing P/E
P/S
ROE
Target
Absolute
Mean
Current
20.4
28.8
Per
Multiple
Share Price
9.4
2.12
43.23
8.9
2.12
61.05
4.0
.7
21.5
27.35
16.9
24.36
97.44
NIHD - Target Price & Upside
Terminal
Growth Rate
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$20.46
$30.70
50.03%
Discount Rate
9.50% 10.00% 10.50% 11.00% 11.50% 12.00% 12.50% 13.00%
2.50% 38.63 35.98 33.67 31.63 29.82 28.20 26.75 25.43
3.00% 40.33 37.40 34.86 32.64 30.68 28.94 27.39 25.99
3.50% 42.32 39.03 36.22 33.78 31.65 29.77 28.10 26.60
4.00% 44.66 40.94 37.78 35.08 32.74 30.70 28.89 27.28
4.50% 47.47 43.19 39.61 36.59 34.00 31.75 29.78 28.05
5.00% 50.91 45.89 41.77 38.34 35.44 32.95 30.79 28.90
NIHD Recommendation
 Upside of 50.03% from DCF
 Extremely cheap price multiples
 Latin American wireless
 NIHD has more room to grow than AMX
 Cyclical growth stock
 BUY 75 bps
Verizon Communications (VZ)
 iPhone contract with AT&T expires in 201o, Verizon is
in discussions with Apple to develop an iPhone for
Verizon with the goal of introducing it next year.
 40 percent of iPhone users are new AT&T subscribers,
contributing to yet another net gain in wireless
customers.
 Verizon can expect similar results if Apple does
produce a version of the iPhone for Verizon.
Valuation Analysis: Price Multiples
VZ
Multiple
Forward P/E
Trailing P/E
P/S
ROE
Target
Absolute
Mean
Current
13.5
13.8
Per
Multiple
Share Price
11.3
2.55
34.42
11.3
2.55
35.19
1.2
0.8
14.9
35.29
15.8
32.80
39.36
VZ - Target Price & Upside
Terminal
Growth Rate
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$29.26
$35.22
20.35%
Discount Rate
9.50% 10.00% 10.50% 11.00% 11.50% 12.00% 12.50% 13.00%
2.50% 44.96 41.70 38.84 36.33 34.11 32.12 30.33 28.72
3.00% 47.08 43.45 40.32 37.58 35.17 33.03 31.12 29.41
3.50% 49.54 45.48 42.01 39.00 36.38 34.06 32.01 30.17
4.00% 52.46 47.85 43.96 40.62 37.74 35.22 32.99 31.02
4.50% 55.95 50.65 46.23 42.49 39.29 36.52 34.10 31.97
5.00% 60.23 54.00 48.91 44.68 41.09 38.02 35.36 33.03
VZ Recommendation
 Upside of 20.35% from DCF
 Underpriced multiples
 iPhone on the horizon (4G)
 Domestic defensive stock = sector diversification
 BUY 50 bps
China Mobile Limited (CHL)
 World’s #1 mobile operator - in terms of subscribers
 415 mil wireless subscribers (2/3 of China market)
 Largest company on Hong Kong Stock Exchange
 1/2 of new subscribers in 2007 from rural areas
 Continued growth will be fueled by rural expansion
 State-owned corporation
 This year, the company will start rolling out 3G
 More data plans = more revenue
 iPhone?
Valuation Analysis: Price Multiples
CHL
Multiple
Forward P/E
Trailing P/E
P/S
ROE
Target
Absolute
Mean
Current
Per
Share
Multiple
Price
16.0
15.8
11.4
11.3
4.10
4.10
65.60
64.78
3.7
3.2
15.03
55.61
22.2
57.64
25.9
CHL - Target Price & Upside
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$49.21
$80.76
64.11%
Terminal
Growth Rate
Sensitivity Analysis
1.00%
1.50%
2.00%
2.50%
3.00%
9.30%
60.09%
68.41%
77.87%
88.72%
101.29%
9.50%
56.23%
64.11%
73.04%
83.24%
95.01%
Discount Rate
9.70%
9.90%
52.55% 49.04%
60.02% 56.12%
68.45% 64.11%
78.06% 73.17%
89.11% 83.54%
10.10%
45.68%
52.41%
59.97%
68.53%
78.30%
10.30%
42.46%
48.87%
56.04%
64.14%
73.34%
10.50%
39.38%
45.48%
52.29%
59.96%
68.64%
CHL Recommendation
 Upside of 64.11% from DCF
 Very cheap price multiples
 Defensive Growth company
 Opportunities for continued growth in rural regions
 3G on the horizon
 Wireless data & possible iPhone
 BUY 271 bps
Rating Ticker BPS Upside
Recommendations
 AMX has low DCF valuation and is
approaching maturity. Good
company, but there are better ones
Sell
Buy
AMX 240 13.81%
VZ
50 20.35%
Buy NIHD 75 50.03%
Buy
 VZ is a defensive domestic that
CHL 271 64.11%
Total 396
keeps us diversified while positioning for growth
 NIHD is a cyclical growth stock that seems undervalued
and has a very impressive upside
 CHL is a defensive growth stock with the highest upside
and potential for major growth in rural regions