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French telecom giant Orange (ORAN - Analyst Report) is considering options to either reduce its stake or sell its Kenyan and Ugandan operations, both of which have been struggling in recent years. The news boosted the stock price as it ended 3.88% higher on Monday trade on NYSE.

Orange holds a 70% stake in Telkom Kenya with the remaining 30% being held by the Kenyan government. But the third largest mobile operator in Kenya has been struggling to cope with rival Safaricom’s infrastructure capacity and Airtel’s continuous mobile subscriber gains.

The story is quite the same in Uganda, where the telecom behemoth has failed to make a solid impression as the market continues to be dominated by South Africa’s MTN and India’s Airtel. Notably, Orange has a 95% stake in its Ugandan operations.

The company now wants to bring in new partners in these two countries to ensure enough financial and operational resources to support investment and maintenance of operations.

Africa and Middle East remains an important market for Orange as the company faces stiff competition in key European markets. The telecom carrier has a presence in 17 countries with a total subscriber base of 88 million at the end of 2013.

Recently, Orange reported 2013 earnings per share of 71 euro cents (approximately 94 cents), missing the Zacks Consensus Estimate of $1.27 but improving from last year’s earnings of 31 euro cents (approximately 39 cents) driven by  the growing numbers of mobile customers and  4G mobile broadband customers in France.

We believe that if Orange finds a suitable partner it will be in a much better position to fight the competitive challenges of its rivals. However, if the company fails to find a suitable partner it might face a similar fate as Yu Mobile, which had to sell its operations in Kenya to Safaricom and Airtel after suffering continuous losses.      

Orange, currently carries a Zacks Rank #3 (Hold). Other stocks worth considering within this sector are SK Telecom Co Ltd. (SKM - Analyst Report), Shenandoah Telecommunications Co. (SHEN - Snapshot Report) and Level 3 Communications Inc. (LVLT - Snapshot Report). While SK Telecom and Shenandoah Telecommunications carry a Zacks Rank #1 (Strong Buy), Level 3 Communications carries a Zacks Rank #2 (Buy).

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