At the beginning of 2013, shares in Vodafone (LSE: VOD) (NASDAQ: VOD.US) were 155p, their lowest price since 2010. Brave buyers at this point were well rewarded. From this low, the Vodafone share price did not look back, hitting 200p in late May.
However, the shares have not hit those highs since. In fact, in the last three months, the shares are down 1.1%, versus a 1.9% advance for the FTSE 100 index. At one point in June, the shares fell to 176p — more than 10% below the level of just one month previous.
This year, Vodafone has been a tale of two continents. The bull case for the stock centres on the value in the company’s North American joint venture Verizon Wireless. The bears, however, have been focusing on the company’s struggles in Europe.
The rise to 200p coincided with speculation that Vodafone might receive an offer for its stake in Verizon Wireless from its venture partner Verizon Communications.
Share price falls have normally followed announcements on European trading, such as the news earlier in July that UK and German revenues were both down by around 5%. Southern Europe showed even bigger declines.
Prospects
Vodafone’s mobile service is regarded by its consumers as a must-have service. However, unlike electricity and gas, the price of mobile calls and data have been falling as a result of competition and European regulation.
As for Verizon Wireless, while its value is not fully recognised in the Vodafone share price, I do not expect a bid to arrive any time soon.
Earnings fears for the group are encapsulated in broker forecasts for 2014. Today, the consensus forecasts for the full year are at their lowest for 12 months.
Valuation
Those forecasts put Vodafone shares on a P/E for the year of 12.0 times earnings. Modest earnings per share growth is forecast for the following year, pushing the P/E down to 11.3.
Last year’s dividend payout amounted to a 5.3% yield. Another two years of payout increases are forecast. A yield of 5.5% is expected for this year, rising to 5.6% the year after.
Verdict
The forecast dividend rises are smaller than in previous years. I sold my Vodafone shares recently at 193p and will not buy back unless the shares are trading for less than 165p.
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> David does not own shares in any of the companies mentioned. The Motley Fool has recommended shares in Vodafone.
