Despite the excitement surrounding a possible sale of its Verizon Wireless stake, I think Vodafone plc (LON: VOD) is a 'sell'.
Everybody loves bid rumours and speculation.
Indeed, there seems to be little better than a dollop of merger and acquisition talk to ramp up a share price to exceptionally high levels. Great if you hold the shares, frustrating if you were thinking of buying them before their rise.
Indeed, bid speculation has been a major reason for the significant share-price gains made by Vodafone (LSE: VOD) (NASDAQ: VOD.US) in recent months. The shares were as low as 160p in February, reached 200p in May and now trade around 179p.
Of course, recent news flow on the company has been dominated by Vodafone's takeover of Kabel Deutschland for €7.7 billion.
According to some analysts, this bid increases the chances of a sale of Vodafone's 45% stake in Verizon Wireless, which is a joint venture between the British telecoms behemoth and US peer Verizon Communications.
So, with the deal to purchase Kabel Deutschland not appearing to have dampened the Verizon speculation, many investors could be left thinking that, with a bid still possible, Vodafone shares may be worth a look.
However, I believe that Vodafone is a 'sell' for the following three reasons:
1) Profitability has been poor for a number of years; return on equity has failed to reach double digits in any of the last five years.
2) Verizon Wireless is the 'crown jewel' in Vodafone's locker. The rest of the business is failing to make notable gains, particularly in India where tax issues continue to hold the company back.
3) The shares seem to be at least partly pricing in the sale of Vodafone's stake in Verizon Wireless. Any disappointment on this front could lead to a substantial share-price fall.
I do not own shares in Vodafone, nor do I intend to buy them just in case there is a bid for the Verizon Wireless stake.
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> Peter does not own any share mentioned in this article. The Motley Fool has recommended shares in Vodafone.