Vodafone Group plc’s Earnings Could Slump By A Third!

Forecasts suggest a period of earnings retrenchment for Vodafone Group plc (LON: VOD).

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Vodafone (LSE: VOD) (NASDAQ: VOD.US) has been a popular share amongst investors over the past few years, as it has sought to extend its global reach.

And that has brought rewards — we’ve seen steady earnings with rising dividends, and investors also enjoyed that nice windfall after Vodafone sold its share of Verizon wireless.

But with earnings forecast to fall back over the next couple of years, and Vodafone softening its target for dividend rises, the company has fallen out of favour with a number of investors.

Shares up, forecasts down

The share price is admittedly up 12% over the past 12 months, but it’s been sliding since the start of 2014, standing today at 213p. And a good part of that must surely be down to falling earnings forecasts for the next few years.

There’s currently a 9% decline in earnings per share (EPS) on the cards for the year just ended in March 2014, which alone is no great problem. But the consensus outlook for 2015 has been dropping alarmingly. A year ago, the brokers were forecasting EPS of nearly 18p for 2015, which would have provided a small rise over the currently-expected 2014 figure.

A bad year

vodafoneBut today the forecast has dropped to little more than half that, at 9.6p, and that would represent a massive 33% fall! Admittedly the range of individual brokers’ opinions is very wide — the highest of 14p is twice the lowest estimate of 7p — but that uncertainty adds worry for a lot of investors.

Dividends look likely to stagnate too, now that the company has lowered its target to merely try to pay more each year — meaning no rise at all is a possibility. In fact, after a modest forecast rise for 2015, some are even predicting a small fall for 2016.

Dividends not covered

Dividend yields should stay a little above 5%, but we’re looking at a couple of years in which payouts might not even be covered by earnings — and for a telecoms company that needs to reinvest pots of money in technological development and expansion each year, I don’t think that’s good.

There are 14 out of 30 analysts currently urging us to buy Vodafone shares, with only three suggesting we should dump them — but with the shares on a 2015 P/E of 22, I think that optimism is misplaced!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan does not own any shares in Vodafone.

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