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Will Telefonica Be AT&T's Answer to Verizon?

Telefonica (NYSE: TEF  ) will release its quarterly report on Friday, and investors have seen shares of the Spanish telecom soar recently as prospects for the European economy have improved. Yet, as important as Telefonica earnings are for company shareholders, another big wild card is whether AT&T (NYSE: T  )  will decide to make another run at acquiring the telecom outright, or try to buy some of Telefonica's stock or assets. Given the need for AT&T to respond to Verizon's recent deal to take full control of its wireless division, is Telefonica the best fit?

In the eyes of many investors, Telefonica was unfairly punished in the more general rout of European stocks that resulted from recessionary economic conditions on the continent. But as the economy in Europe has started to improve, Telefonica has come back strong. Regardless of AT&T's intentions, Telefonica has made some strategic moves of its own to try to bolster its own competitive position worldwide. Let's take an early look at what's been happening with Telefonica over the past quarter, and what we're likely to see in its report.

Stats on Telefonica

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$18.7 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Is Telefonica's rise for real?
In recent months, analysts have pulled back on their views on Telefonica earnings, cutting full-year fiscal 2013 projections by about 5%. The stock, though, has climbed sharply, jumping 20% since early August.

Much of the interest surrounding Telefonica stock comes from speculation earlier this year that AT&T was talking with Telefonica to discuss a major transaction involving the two companies. For its part, Telefonica has consistently denied reports either of an all-out purchase offer from AT&T -- rumored to have been worth as much as $93 billion -- or of more modest proposals, such as AT&T's taking a minority stake, or buying certain assets. The idea of AT&T trying to grow internationally makes sense in light of Verizon's big expansion domestically, but it increasingly seems that AT&T shouldn't see Telefonica as a willing partner for its aspirations.

In fact, Telefonica is making big growth moves of its own. In July, it announced plans to combine its German O2 division with Dutch telecom KPN's E-Plus, which would create the largest mobile company in Germany. The deal could pit Telefonica against Mexican telecom America Movil, which made a bid to buy KPN in its entirety, and the regulatory process could take a year or more to navigate before any merger could become final. Telefonica also agreed in September to boost its position in Telecom Italia, with plans, eventually, to take a 70% stake in the Italian telecom. The move will help bolster Telefonica's Latin American presence by allowing it to acquire some of Telecom Italia's assets in the fast-growing region.

Most recently, Telefonica agreed to sell off most of its stake in its Telefonica Czech Republic subsidiary, raising $3.33 billion over the course of the agreement with Czech company PPF. Telefonica will keep about a 5% stake in the unit, but the move emphasizes Telefonica's desire to focus more on its most important businesses.

In the Telefonica earnings report, watch to see if the company talks about future plans for its dividend. After suspending payments for a year, Telefonica recently made a payout that's about half the size of its pre-suspension amount. Hopefully, dividend investors will see further payout gains if Telefonica can continue to gain ground -- assuming that the company doesn't fall into AT&T's hands in the future.

Is Telefonica's dividend back for good?
Telefonica was once a high-yielding dividend stock, and it could become one again. That's important for one simple reason: Dividend stocks can make you rich. But you have to find the top dividend stocks available to make the most of their wealth-making opportunity. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Click here to add Telefonica to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

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  • Report this Comment On November 10, 2013, at 2:31 AM, RyanPeckyno wrote:

    TEF certainly has a lot going for it right now -- plus its debt should be a lot cheaper now. I am interested to see what TEF does with its dividend.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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