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Telefonica SA ADR TEF

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Morningstar’s Analysis

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Economic Moat

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Stewardship

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Telefonica Reports Second-Quarter Results Weaker Than We Expected, FVE Reduced by 7%

Andreea Matysiak Equity Analyst

Analyst Note

| Andreea Matysiak |

Narrow-moat Telefonica reported second-quarter results below expectations. First-half revenue declined by 4% organically, versus our low-growth assumption. Most of the difference is driven by Brazil and Latin America countries, which the pandemic strongly affected. We adjust downward our sales and earnings estimates for these regions and account for a slightly lower cost savings going forward, resulting in a fair value estimate cut to EUR 8.70 for the locally traded shares. ADR at our $10.20 fair value estimate is unchanged.

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Company Profile

Business Description

Telefonica is the incumbent telephone operator in Spain, which accounts for about 26% of the group’s sales. Besides Spain; Brazil, Germany and U.K. are key markets. Management intends to spin off its Latin American operations, except Brazil. The firm has launched two new business units: Telefonica Tech and Telefonica Infrastructure. Telefonica Tech, a B2B segment offers cybersecurity, the Internet of Things, big data, and cloud services. Telefonica Infrastructure manages the firm’s infrastructure assets (towers, antenna systems, data centers, and greenfield fiber projects).

Contact
Distrito Telefonica, Edificio Central. Planta 3, Ronda de la Comunicacion S/N
Madrid, 28050, Spain
T +34 914828700
Sector Communication Services
Industry Telecom Services
Most Recent Earnings Jun 30, 2020
Fiscal Year End Dec 31, 2019
Stock Type
Employees 113,621

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