VOD Expanding Its Network

We maintain our Buy recommendation for Vodafone Group PLC (VOD - Analyst Report), the largest revenue generating international wireless carrier.

The company’s recent operating results are highlighted by strong growth in subscribers across consolidated segments (notably in the emerging markets bolstered by operations in India). However, new market performance was offset by contraction of service revenue in core European markets.

Vodafone is accelerating 3G wireless service deployments and expanding network availability across Asia, Eastern Europe and Africa, primarily through acquisitions. Additionally, the company continues to emphasize improving shareholder returns through sustainable dividend payouts, which supports our valuation forecasts. While management’s recent revenue guidance for fiscal 2009 was less encouraging due to weak macroeconomic conditions in core European market segments, net earnings performance is expected to improve, fostered by restructuring and cost cutting initiatives.

Vodafone shares are trading at 7.5x our fiscal year 2009 EPADR estimate, which is at a discount to its European peer group average. We reduce our six-month target price to $25, based on 9.7x our fiscal year 2009 EPADR estimate, at more conservative valuation levels based on overall market conditions and the associated strain on equity markets.

Anindya Barman contributed to the report.

Read the full analyst report on VOD