On Thursday, Morgan Stanley raised its rating for Telefonica (NYSE:TEF) S.A. (NYSE:VIV) stock from Equalweight to Overweight, setting a new price target of $11.00. The firm identified the current valuation as an attractive entry point after the stock experienced a significant year-to-date decline.
The analyst noted that Telefonica's stock price had fallen approximately 20% since the beginning of the year, undoing much of the gains following the Oi transaction closure in 2022. This price drop has made Telefonica's shares about 40% cheaper based on enterprise value to operating cash flow (EV/OCF) compared to other defensive stocks in Brazil.
Morgan Stanley highlighted several reasons for the positive outlook on Telefonica. Firstly, the company is considered a defensive business capable of weathering macroeconomic challenges in Brazil. Additionally, the firm anticipates improving free cash flow, driven by accelerating fixed revenues alongside sustained mobile segment strength.
The upgraded price target suggests a 26% potential upside from the current trading level, coupled with an attractive dividend yield projected at 9% for the year 2025. This assessment underscores the firm's confidence in Telefonica's financial prospects and its ability to deliver shareholder value in the coming years.
In other recent news, Telefonica Brasil (NYSE:VIV) has been active in the investment and strategic planning arena. The firm has invested $5 million in AI company CRMBonus, aiming to enhance customer relationships. This move aligns with Telefonica Brasil's broader goals of digital transformation and customer engagement.
Moreover, Telefonica Brasil's Board of Directors approved a Self-Composition Agreement aimed at transitioning the current concession contracts for the Switched Fixed Telephone Service to an authorization regime. This agreement is expected to conclude ongoing administrative and judicial proceedings related to the service.
The company has also introduced a new incentive plan, the 2nd Incentive Plan via Performance Units with Cash Settlement, designed to align key managers' interests with shareholders by tying compensation to strategic goals.
On the financial front, Telefonica Brasil's Q1 performance showed increases in revenue, EBITDA, and net income, with respective growth of 6.5%, 6.8%, and 7.3% year-over-year. The company's FTTH footprint covers 26.8 million locations, with a target to expand to 29 million by year-end.
Lastly, Telefonica Brasil plans to distribute at least 100% of net income in dividends over 2024, 2025, and 2026. A new share buyback program has also been put in place, with up to R$1 billion to be invested by March 2025. These are the recent developments in Telefonica Brasil's operations.
InvestingPro Insights
In line with Morgan Stanley's optimistic outlook for Telefonica S.A. (NYSE:VIV), InvestingPro provides additional insights that may interest investors considering the company's stock. Telefonica boasts a perfect Piotroski Score of 9, indicating robust financial health, and operates with a moderate level of debt, which supports its status as a defensive investment. Analysts have also revised their earnings upwards for the upcoming period, reflecting potential growth prospects.
InvestingPro Data reveals a market capitalization of $14.3 billion and a P/E ratio of 13.63, with adjusted figures from the last twelve months as of Q1 2024 showing a slightly higher P/E ratio of 14.89. The company's dividend yield, as of a recent date in 2024, stands at an appealing 4.33%, complemented by a strong dividend growth of 13.76% over the last twelve months. These metrics, alongside a price that is 77.86% of its 52-week high, may offer a compelling value proposition for investors.
For those seeking more in-depth analysis, InvestingPro offers additional InvestingPro Tips, including insights on Telefonica's low price volatility and its position as a prominent player in the Diversified Telecommunication Services industry. Subscribers can find out more about these and other valuable tips by visiting https://www.investing.com/pro/VIV. Furthermore, to enhance your investment research, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, with 7 more InvestingPro Tips available for Telefonica on the platform.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.