SeekingAlpha (blog): Is Cellcom Israel Really Undervalued?
July 19, 2012–Cellcom Israel (CEL), Israel’s second largest cellular device carrier, has a mixed valuation. Cellcom has a price to earnings ratio (P/E) of 3.41, one of the lowest in the telecommunications industry. In fact, Cellcom’s P/E is nearly seven times lower than its industry’s average of 24.6 . Along with a low P/E ratio, Cellcom’s fiscal year sales were $1.65 billion, more than double its market capitalization of $577 million. In addition to their sales and earnings, Cellcom also pays a hefty 28% dividend. However, Cellcom has collapsed for many reasons.
Why Cellcom’s Stock Price has Receded
Cellcom Israel’s stock price collapsed due to new competition in Israel’s cellular market, which has eroded margins and reduced the number of Cellcom’s subscribers.
Depreciated Stock Price
Pros: Over the last year, Cellcom’s stock price has dropped 77.18%, while its income and dividend rate have not dropped by the same factor.
This has created an very low price to earnings ratio and very high 28% dividend yield. Along with its depreciated stock price, Cellcom has a price to sales ratio of 0.4, lower than the industry average of 1.1 by almost three times; a positive 0.5% revenue growth, the industry average is down 1.7%, and a 10.6% profit margin, more than doubling the industry’s profit margin of 4.1%.
Cons: Cellcom’s stock has collapsed due to many financial elements. Cellcom has a debt/equity ratio of 21.2, about 8.5 times more than the industry’s average of 2.5. Cellcom has a Price/Book value of 8.8, 5.5 times larger than the telecom industry average of 1.6 and has a earnings per share growth of -6.00%, 10.5% less than the industry’s average of 4.5%. Cellcom’s revenue and income declines are suppose to escalate, causing very negative prospects for Cellcom’s future.
A quote by Cellcom’s Chief Executive Officer, Nir Sztern…
“The intensified competition which characterized this past year, led to a continued reduction in service revenues. The decline in service revenues will continue in the following quarters and may even escalate as a result of the new competition, and so, we intend to implement additional efficiency measures regarding costs and merger synergies, but we estimate that these measures will only partly compensate for the decrease in revenues.”
… brings expectations for Cellcom’s stock price to even lower standards. When a CEO openly states that losses will further escalate, it typically happens….Read More>>
