Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

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

By Dan Caplinger - Nov 6, 2013 at 7:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Telefonica has seen a big rebound in its shares lately as prospects for Europe have improved, but will the European telecom giant end up being part of AT&T's international growth strategy to answer Verizon's takeover of its wireless business?

Telefonica ( TEF 2.16% ) 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 ( T -0.77% ) 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.

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

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Telefónica, S.A. Stock Quote
Telefónica, S.A.
$4.25 (2.16%) $0.09
AT&T Inc. Stock Quote
AT&T Inc.
$23.28 (-0.77%) $0.18
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$51.07 (-0.68%) $0.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.