The Vodafone Group (LSE:VOD) share price has taken an absolute walloping in 2023. Yet despite this, I believe the telecoms titan is one of the best FTSE 100 stocks to buy.
Okay, the company has some significant problems to overcome. It needs to find a way to boost profits in Germany after housing associations were banned from bundling TV services with rental contracts. It could also face a battle to get its planned merger with Three in the UK over the line.
That said, I think Vodafone’s 12% share price decline this year represents a great dip-buying opportunity. Here are four reasons why I think the firm is a top buy today.
1. Supreme all-round value
Today, Vodafone shares look dirt cheap on two key metrics, namely the price-to-earnings growth (PEG) ratio and the dividend yield.
At 75p per share, its PEG reading for this financial year (to March 2024) sits at just 0.9. A reminder that any reading below 1 indicates that a stock is undervalued.
Meanwhile, a 9.2% dividend yield for this year sails above the 3.8% average for FTSE 100 shares. Even if dividends are cut (as some analysts expect), there’s a great chance Vodafone will still deliver one well above the UK blue-chip average.
2. Impressive economic moats
It isn’t simple and it isn’t cheap to do what this company does. This gives it a considerable economic moat, as billionaire investor Warren Buffett would say.
In other words, it’s not easy for a competitor to set up overnight and pull its customers away. Telecoms is a very expensive business, from acquiring spectrum licences to operate wireless networks, to keeping assets like masts and fibre optic cables up and running. The bills are huge. This is also a highly regulated industry and operators need to jump through hoops to stay in business.
Vodafone also has one of the strongest brands in the business, which helps provide extra protection from competitive threats. According to Statista, it is the 10th most valuable telecommunications brand in the world today.
3. Emerging market exposure
The global telecoms market will grow steadily over the long term as the digital revolution continues. This includes Europe, although the rate of expansion is likely to be slower, given its position as a mature market.
What gives Vodafone the edge over its continental competitors is its exposure to Africa. Organic service revenues at its Vodacom unit rose a solid 4.6% in the 12 months to March. I’m expecting sales to continue chugging higher too as population levels and personal incomes rise in its developing markets.
4. Changes under way
I’m also encouraged by its plans to transform itself following years of underperformance. The company recently admitted that “the comparative performance of Vodafone has worsened over time” and that things have to change.
New chief executive Margherita Della Valle plans to slash 11,000 roles over the next three years to get costs under control. She also intends to double-down on its Vodafone Business unit and boost customer service- and brand-related spending.
Finally, Vodafone is also taking bold steps to turn around its German operations and, in August, signed a long-term roaming agreement with local operator 1&1.
It has a long way to go but I think the signs are encouraging for this beaten-down stock.
