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Quarter-End Insights

Our Outlook for the Telecom Sector

Growth is limited, but we're still big fans of these mature international firms.

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Rapid expansion in telecom markets around the world, particularly in emerging markets, has caused stock prices to skyrocket in recent months. Echoing our last sector report, some of the increase in prices is warranted, and we have updated a number of fair value estimates to account for the opportunities these companies enjoy. However, high-double-digit growth in many international markets has left firms such as  NTT DoCoMo (DCM) and  SK Telecom (SKM), which were once the crown jewels of the telecom industry, in the dark, as these companies' growth stages are long gone. But although growth is important, cash flows determine the value of companies at the end of the day, and these stodgy telecom operators continue to generate significant amounts of cash and attractive margins.

Jacqueline Zhang does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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