Can Vodafone Continue to Outperform?

With shares of Vodafone (NASDAQ:VOD) trading around $36, is VOD an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Vodafone is a mobile communications company that provides a range of communication services and operates across the globe. The firm’s products and services cover voice messaging, data, fixed-line solutions, and devices to assist customers in meeting their total communications needs. Vodafone operates in three geographic regions: Europe, Africa, and Central Europe; Asia Pacific; and the Middle East.

Vodafone posted third-quarter results in Britain with the UK-based wireless carrier showing a 4.9 percent drop in organic service revenue due to price cuts imposed by European regulators and greater competition for its European services, according to Reuters. Vodafone also announced that it’s planning to pour $7 billion into improving its networks in Europe through March 2016. The cash will come from the $130 billion sale of Vodafone’s stake in Verizon Wireless to Verizon Communications.

T = Technicals on the Stock Chart Are Strong

Vodafone stock has been steadily rising over the past several years. The stock is now trading near highs for the year and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Vodafone is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

VOD

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Vodafone options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Vodafone Options

16.65%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

December Options

Flat

Average

January Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Vodafone’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Vodafone look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

262.88%

N/A

739.36%

-32.34%

Revenue Growth (Y-O-Y)

2.49%

N/A

-5.74%

-1.96%

Earnings Reaction
1.57%*

0.23%

0.33%

-2.25%

Vodafone has seen mixed earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Vodafone’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Vodafone stock done relative to its peers, Verizon (NYSE:VZ), AT&T (NYSE:T), T-Mobile (NASDAQ:TMUS), and sector?

Vodafone

Verizon

AT&T

T-Mobile

Sector

Year-to-Date Return

46.09%

15.97%

4.23%

32.80%

25.77%

Vodafone has been a relative performance leader, year-to-date.

Conclusion

Vodafone provides telecommunications services and related products around the world. The company announced that it’s planning to pour $7 billion into improving its networks in Europe through March 2016. The stock has been moving higher in recent years and is now trading near highs for the year. Over the last four quarters, earnings and revenues have been mixed, producing conflicting feelings among investors. Relative to its peers and sector, Vodafone has been a year-to-date performance leader. Look for Vodafone to OUTPERFORM.

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