NTT Upgraded to Neutral - Analyst Blog

We are upgrading our recommendation for Nippon Telegraph & Telephone Corp. (NTT) from Underperform to Neutral, implying that the stock will perform in line with the broader market.   Nippon is currently trading at a discount to both the industry average and the S&P 500 group.
 
Despite facing intense pricing pressure from smaller telecom service providers and having a leveraged balance sheet, we believe Nippon will improve its performance in future based on its continuous efforts to provide upgraded products with technological innovations. Management has taken up various measures including selected international opportunities to drive future growth.
 
Nippon’s strategy is to maintain the leadership position in the domestic telecom market and capture selected international opportunities to drive long-term growth. Relative to its closest competitor in Japan, Nippon’s brand and omnipresence positions it well to tackle competitive threats.
 
Nippon launched Internet Protocol (IP) phone service for the Japanese residential markets which is expected to garner healthy recurring revenue as the network evolves to facilitate video and online LIgaming options. As we look ahead, broadband service plans for residential and business customers will become the primary growth factor.
 
Recently, NTT DATA, a 54%-owned publicly traded subsidiary of Nippon, announced a merger agreement with Intelligroup, Inc., a US-based IT services company, whereby NTT DATA will acquire Intelligroup for approximately US$199 million through an all-cash tender offer. NTT DATA will be able to access Intelligroup's entire global operation network, thereby enabling it to provide better service for Intelligroup's and NTT DATA's global client base, through coordination and cooperation with NTT DATA global affiliates.
 
However, we believe all these positives are already reflected in the current valuation leaving little room for any above market gain.  This is supported in Zacks Rank #3 (Hold) and our Neutral recommendation for Nippon.