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Rising Rates Spur Verizon-Vodafone Deal

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Although financing isn’t fully secured yet, earlier this week Verizon (click ticker for report: ) and Vodafone (click ticker for report: ) agreed to a $130 billion deal for Verizon to acquire Vodafone’s 45% stake in Verizon Wireless. The deal values Verizon Wireless at nearly $290 billion (or nearly 10 times EBITDA), and it could immediately boost earnings per share by 2%-10%. Though this is certainly a large deal, we think Verizon acted quickly to capitalize on interest rates that have moved sharply to the upside in recent months (it didn’t want to wait for a further increase, which may have made the deal cost-prohibitive). As we noted in our prior discussion of the deal, rising rates and a declining … Read more

AT&T Fends Off Intensified Competition in the Second Quarter

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Tuesday afternoon, telecom giant AT&T (click ticker for report: ) reported solid second quarter results, fending off intensified competition from T-Mobile (TMUS). Revenue grew 1.6% year-over-year to $32.1 billion, slightly ahead of consensus estimates. Earnings per share excluding one-time items rose 2% year-over-year to $0.67, falling a penny shy of consensus estimates. Free cash flow was relatively strong at $4 billion, equal to 12% of revenue. Image Source: T 2Q2013 Investor Presentation Mobile data growth remained robust during the second quarter, surging 20% year-over-year to $5.4 billion. AT&T activated 6.8 million smartphones posting a record quarter for Android (click ticker for report: ) devices and LTE (35% of all smartphones). While we didn’t get specific commentary on Apple iPhone (click … Read more

Apple Proves It Isn’t Dead

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On Tuesday, Best Ideas Newsletter portfolio holding Apple (click ticker for report: ) posted strong third quarter results and solidified our view that the iPhone is far from dead. Revenue increased 1% year-over-year to $35.3 billion, exceeding consensus estimates. Earnings per share were also better than the consensus had anticipated, falling 20% year-over-year to $7.47 per share. Year-to-date, free cash flow remains terrific at $37.5 billion or roughly 28% of total revenue. Image Source: AAPL 3Q FY13 Earnings Report Apple’s most important product, the iPhone, did phenomenally well as the firm sold 31.2 million units compared to the consensus estimate of 26.2 million. Remember how media pundits have claimed repeatedly that people only want Samsung Galaxies? We’ve made the argument … Read more

Verizon Shows Off Cash-Flow Generating Prowess in Second Quarter

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Thursday morning, Verizon (click ticker for report: ) reported in-line but strong second quarter results and raised its capital spending guidance for 2013, casting a positive light on the telecom equipment makers. We continue to pay very close attention to Verizon’s operating performance, as we consider the firm one of our top contenders for addition to our Dividend Growth portfolio. Verizon’s revenue performance during the quarter was solid (up more than 4% on a consolidated basis), with wireless service revenues and wireless retail service revenues both up about 8%. The company posted 941,000 retail postpaid net additions (up 6% year-over-year), driving total retail postpaid connections to 94.3 million (retail postpaid churn was 0.93% in the second quarter). Apple’s (click ticker … Read more

AT&T Tries Again…This Time: Leap Wireless

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Through the course of the past two years, we’ve seen a trend toward consolidation in the US wireless industry. AT&T (click ticker for report: ) failed to purchase T-Mobile (TMUS) in late 2011, but the firm has taken another stab at gobbling up spectrum and customers, announcing its intention to acquire Leap Wireless (LEAP) Friday for $1.2 billion plus the assumption of Leap’s net debt of approximately $2.8 billion. The deal works out to $15 per share, but AT&T will sell Leap’s Chicago spectrum with the proceeds going to Leap shareholders, which investors are pegging at $2+ per share of additional value. After regulators squashed AT&T’s purchase of T-Mobile, T-Mobile USA merged with MetroPCS. Not long after, Sprint (click ticker … Read more

Dish Won’t Go to War Over Clearwire; What’s Next?

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Late on Wednesday afternoon, news hit the tape that Dish Network (click ticker for report: ) would end its pursuit for Clearwire (CLWR), paving the way for Sprint (click ticker for report: ) to assume full control of the company for $5 per share (in line with our fair value estimate). Although we thought as well as the market thought (since shares of Clearwire were trading above the Sprint buyout price prior to the withdrawal) that Dish Chairman and founder Charlie Ergen would make a higher offer for Clearwire, Ergen may have known a bit more than he led onto during the bidding process, given that the FCC just approved draft rules for the auction of additional spectrum one day … Read more

Sprint May Be Settled But What About Clearwire?

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After a drawn-out saga, Dish Network (click ticker for report: ) dropped its pursuit of Sprint (click ticker for report: ) Friday. Sprint seems intent on accepting SoftBank’s offer, and we do not believe Dish could afford to offer more for the US’ third-largest wireless company. Yet, a dropped bid for Sprint does not mean Dish is out of the running for Clearwire (CLWR). On Thursday, Sprint raised its bid for Clearwire to $5 per share, a move valuing Clearwire at $14 billion (and something we had anticipated). Many may suspect that Dish’s decision to end its pursuit of Sprint as a declaration of peace, but we aren’t sure that is the case. Dish founder/chairman Charlie Ergen is well aware … Read more

Apple: Capital Allocation Can’t Shake Bearish Sentiment

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Best Ideas Newsletter holding Apple (click ticker for report: ) posted solid results Tuesday afternoon.  Apple exceeded consensus earnings expectations earning $10.09 per share versus an expectation of $10.07. Revenue grew 11% year-over-year to $43.6 billion, exceeding consensus estimates by over $1 billion. Free cash flow totaled $31.6 billion during the first 6 months of the fiscal year, an increase of 10% compared to the same period a year ago. Importantly, the company also announced expanded intentions to repurchase shares and boosted its dividend 15%. The firm’s buyback was raised to $60 billion (from $10 billion), and it will also use $1 billion annually to offset restricted stock grant dilution. Apple sneakily increased its share count 5% over the past … Read more

Ergen Chooses Sprint Over DirecTV

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Monday morning, satellite TV provider Dish Network (click ticker for report: ) made a bold offer to merge with the United States’ third largest cellular carrier, Sprint (click ticker for report: ). The deal represents a valuation premium to SoftBank’s offer $20.1 billion offer for 70% of shares, and we believe Sprint’s board must consider the superior offer, which equates to $4.76 per share in cash and $2.24 per share in Dish stock, valuing Sprint at $25.5 billion. CEO Charlie Ergen is no stranger to bold moves, and many believe he’s had his eye on Sprint for a some time. Although we thought a DirecTV (click ticker for report: ) merger was more likely to occur, the Sprint deal makes … Read more

Will T-Mobile’s iPhone 5 Deal Change the Wireless Industry?

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Tuesday afternoon, wireless carrier T-Mobile finally relented and announced that it will begin carrying Apple’s (click ticker for report: ) iPhone. Bears can attack market share numbers all day, but we’ve shown plenty of evidence supporting why the iPhone is exceptionally popular. Commscore showed data giving Apple 37.8% market share in January, Verizon (click ticker for report: ) reported that iPhones accounted for 63% of smartphones during the fourth quarter, and AT&T (click ticker for report: ) had iPhones account for 84% of its smartphone mix during the same period. Demand for the product remains robust, in our view. Regardless, T-Mobile’s iPhone strategy is a stark departure from industry norms. T-Mobile will finance the phone, allowing consumers to purchase an … Read more