"Well managed, dominant firms use downturns to become more powerful -- and that's definitely what Telefonica (NYSE: TEF) is up to," says Roger Conrad in The Utility Forecaster.
"Incorporated in 1924 as a unit of US-based ITT, the Spain-based company now serves 47 million customers in its home country, 150 million in 14 Latin American nations and 45 million elsewhere in Europe.
"Thus far in the recession, diversity and dominance of fast-growing markets has kept Telefonica growing. Overall global customer rolls increased by 15.2% through the third quarter 2008.
"More than 63% of income is outside Spain, nearly 75% of connections are wireless, and less than 20% are in the shrinking wireline market.
"Excluding asset sales, revenue rose 7%, operating cash flow 10.1% and earnings per share 26.4%. The company stayed on track for 2009 and 2010 growth targets as well.
"The company has EUR5.8 billion of debt to refinance through 2010. That's only about half operating cash flow for the past nine months, however.
"Also, free cash flow will rise more than 50 percent by 2010, leaving plenty to fund debt reduction, targeted expansion in Brazil, Mexico and China, and robust dividend growth, which came in at 38.5 percent over the past 12 months.
"This is a high-yielding company capable of sustained growth in 2009, gearing up for rapid long-term growth and selling for little more than five times projected 2010 free cash flow. The stock is a new addition to our model growth portfolio."
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