With a fair bit of my portfolio already committed to the stocks of cellular phone companies, I think I can say that I "get it" when it comes to the mobile telecom space. Granted, my choices tend toward spicier meatballs like America Movil
That said, I'm not sure I'll be rushing out to buy Alltel
The company released its fourth-quarter earnings this morning. While adjusted earnings per share of $0.77 were six cents short of expectations, I'd still say the quarter was okay. Overall revenue rose 21%, and revenue from the wireless business was up 33%. That's the number that really matters, because the company plans to spin off its wireline business and merge it into Valor Communications
Most of the sundry statistics here looked all right. During the fourth quarter, the company added 147,000 wireless subscribers, saw average revenue per user (ARPU) climb 6%, and churn of paying customers increased a bit to 1.83% (from 1.68%). What doesn't thrill me quite as much is the operating margin for the wireless business, which fell 2.5 percentage points from last year (17.1% vs. 19.6%). I guess you can't win them all, right?
I like the company's 2.5% dividend yield, and when you take into account the growth potential of its wireless business, I think Alltel has some definite appeal versus the likes of Verizon
Coincidentally, when I calculated my estimate of Alltel's fair value today, I came up with a per-share price of $60.88 -- exactly the price that the stock happened to be trading for at that moment. So, with that in mind, I find it difficult to get really excited about this stock. It's certainly a well-run company, but it just doesn't fall within my margin of safety.
For more hardwired Foolishness:
Alltel is a Motley Fool Income Investor recommendation.
Fool contributor Stephen Simpson owns shares of America Movil and Turkcell, but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares). The Motley Fool has an ironclad disclosure policy.