Why China Mobile Ltd. Shares Could Soar 20%

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

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Jul 14, 2014 at 9:51AM
Technology and Telecom

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.