Vodafone's Growth Prospects Already Priced In At This Valuation

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Transformation, Investment Help

In a research note published on Tuesday, the firm's analyst Stephen Biggar pondered on Vodafone's transformation to a provider of a broad mix of communications services from being a pure-play mobile operator. The analyst also noted the company has concluded a two-year capital investment program, helping it to expand its offerings and strengthen the capability of its network. According to the analyst, these two factors could accelerate earnings growth.

Valuation: Sore Point

Notwithstanding the fundamental strength, Argus believes the prospects are already priced into the shares. The stock, the firm pointed out, is trading at a premium valuation of 33.3 times its 2018 earnings per ADS forecast, above the 20.1 times for its peer group.

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Currency To Hit Top Line Growth?

Argus expects 2017 revenues to get a shot in the arm from strong new customer additions and favorable reception to its higher-priced more for more offerings. However, the top line is expected to take a hit from negative currency movements. Nevertheless, the firm sees margin improvement from cost-savings initiatives and acquisition synergies.

At time of publication, Vodafone was up 0.82 percent on Tuesday, trading at $29.44.

Full ratings data available on Benzinga Pro.