Where would value folks be without the occasional overreaction or undue amount of skepticism? I often joke with my Fool buddy Seth Jayson that I'm grateful for all of the shortsighted negativity on Wall Street. After all, if everybody were sharp-eyed and rational, it'd be tough to make money in the stock market, and I'd have to actually work for a living.
Putting aside that horrendous thought, let's take another gander at the generally not-so-loved global communications company Deutsche Telekom (NYSE:DT).
Fourth-quarter results here weren't exactly scintillating, but let's try to keep this in context -- we're talking about a very large company that operates mostly in developed markets. Revenue rose a bit more than 5% in the quarter, with solid double-digit growth from international operations. Profit comparisons are hurt by some accounting items (such as an impairment charge for T-Mobile UK triggered by Telefonica's (NYSE:TEF) purchase of mobile-phone company O2), but adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose by more than 10% for the quarter.
I don't think the big concern is really about the business, per se. After all, mobile revenue climbed by more than 17% (with adjusted EBITDA up more than 20%), and T-Mobile USA continues to do very well against the likes of Verizon (NYSE:VZ) and such. And while the Business Customer segment isn't really lighting things up, the broadband and fixed-line business at least showed some positive EBITDA growth in the quarter.
No, the bigger issue is upcoming capital spending. We won't know the details for a little while yet, but Deutsche Telekom is going to have to shell out some serious coin to acquire new spectrum space in the United States. And if it doesn't spend, say buh-bye to that nice growth from T-Mobile USA.
Here's the thing, though -- the market seems to have already priced this in and then some. As a result, I can make rather modest cash-flow-growth assumptions and still come up with a pretty compelling price target. And there's also the matter of the dividend -- though it's not set in stone by any means, today's yield is pretty appealing.
I routinely look all over the world for ideas in international telecom, and so do many of our newsletter editors. So you can pick from a roster of quality names like New Zealand Telecom (NYSE:NZT), Vodafone (NYSE:VOD), and so on. For my part, though, I still think that DT looks like a pretty good option from the perspective of total potential returns.
For more Foolish telecom thoughts:
New Zealand Telecom is a Motley Fool Income Investor recommendation, and Vodafone is a Motley Fool Inside Value pick. Try out any of our investing newsletters free for 30 days.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
