Why China Mobile Ltd. Shares Could Soar 20%

Does this analyst make a good case? Or is it just more noise from Wall Street?

Jul 14, 2014 at 9:51AM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of China Mobile (NYSE:CHL) rallied 2% on Monday morning after Bank of America/Merrill Lynch upgraded the Chinese telecom giant from neutral to buy.

So what: Along with the upgrade, analyst Sydney Zhang boosted his price target to HK$95 (from HK$78), representing about 21% worth of upside to Friday's close. So while momentum traders might be turned off by China Mobile's year-to-date price sluggishness, Zhang's call could reflect a sense on Wall Street that its growth prospects are becoming too cheap to pass up.

Now what: B of A cited three reasons for the upgrade: "(1) [W]e expect CM to significantly improve its FY14-15 NP helped by SASAC's requirement. ... (2) we believe concerns on potential loss of competitiveness from tower sharing are exaggerated, instead CM could realize large gain from tower monetization; and (3) we expect Co's 4G net adds and EBITDA margin to improve in 2H14 while ARPU & ROIC to bottom in FY15e." When you couple that upbeat outlook with China Mobile's near 4% dividend yield, it's tough to disagree with B of A's upgrade. 

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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