How the European Telecoms Rank: BT Group plc (ADR) (BT), Telefonica S.A. (ADR) (TEF), France Telecom SA (ADR) (FTE)

France Telecom SA (ADR) (NYSE:FTE)

France Telecom has seen its stock dive over the course of a couple years due to declining earnings in its home country, as well as in numerous international markets. France has been a tough operating environment, marked by soft demand as well as rising labor costs. As with the previous two companies, the mobile operations have sustained while it confronts competition in core operations.

Management is anticipating a turnaround to ensue in 2014, when more favorable pricing metrics should kick in for the mobile business and costs ought to stabilize. On that note, labor costs are likely to be less of a burden by that time.

Given that the share price is down more than 50% from its two-year apex, if management’s outlook holds true, FTE shares could be a solid choice at this time. Awaiting a bottoming out of the price is advised. As for the debt level, it appears manageable. The dividend, currently accounting for an approximately 15.5% yield, may be in jeopardy of a reduction given free cash flow requirements for property and plant. Accordingly be aware of that possibility when considering investments.

BT Group plc (ADR) (NYSE:BT)

British telecom BT’s earnings have benefited from cost reductions of late. In the meantime, the company is expanding the reach of its broadband network and adoption of services has been strong. Additionally, its Global Services unit, which provides services such as payment, as well as voice and conferencing, recently turned profitable.

The debt-to-equity ratio is elevated, but may be brought down with capital spending requirements falling. BT shares are worth considering by those anticipating an improvement in the operating climate.

Summary

At current valuations, equity and ADRs of European-based telecoms seem enticing. Factors to review include the growth strategies and geographical footholds of each firm. They offer generous dividends and could have the potential for price upside as operating results start to turn the corner. The question is how well they can boost profitability in light of decreasing access line (subscription) counts in their traditional fixed-line businesses, as is the situation with telecoms around the globe. A brief analysis indicates that TEF shares are best for the near term, while VOD might be a solid long-term holding.

The article How the European Telecoms Rank originally appeared on Fool.com and is written by Damon Churchwell.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.