Telefonica S.A., Telefonica Brazil S.A., America Movil S.A.B. De C.V., China Unicom Limited and Seaway Inc. highlighted in Zacks Analyst Blog

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Jan 18, 2013, 09:30 ET

CHICAGO, Jan. 18, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Telefonica S.A. (TEF), Telefonica Brazil S.A. (VIV), America Movil S.A.B. De C.V. (AMX), China Unicom Limited (CHU) and Safeway Inc. (SWY).

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Here are highlights from Friday's Analyst Blog:

Telefonica in Restructure Mode

The Spanish telecom giant Telefonica S.A. (TEF), or Telef, has declared that its desire to turnaround the company's struggling European operations is progressing as planned. Additionally, the company is also showing marginal signs of improvement in the Latin American market.

Telef has been struggling with rising debt amid Spain's macroeconomic concern. Domestic competition remains a major concern as the unbundled local loop ("ULL") regulation is forcing Telef to open its network to alternative providers. Telefonica Brazil S.A.'s (VIV) the Brazilian subsidiary of Telef –is facing increased competition from rival America Movil S.A.B. De C.V. (AMX) and discounted calling plans from the national wireless operators.

The company has one of the highest debt burdens within the industry and has an outstanding debt of Euro 56 billion ($72 billion). In order to come out of this difficult situation, the telecom behemoth has stopped paying dividends and is planning a widespread restructuring to considerably reduce its leverage. The company raised Euro 1.45 billion ($1.93 billion) by listing its German unit Telefonica Deutschland.

To revive its financial, the Spanish telecom company has been disposing off its non-core assets for quite some time now. As part of that effort, the company recently sold its call centre arm – Atento to private equity firm Bain Capital for approximately Euro 1 billion ($1.3 billion). The company also sold a small stake in China Unicom Limited (CHU) for Euro 1.13 billion ($1.47 billion) in June 2012. Furthermore, the company is also planning to offload its stakes in Portugal Telecom and online booking company Rumbo.

The initiatives taken by the company are yielding positive results as its customer base and cash flow generation are improving. At the end of the first nine months of 2012, customer access reached approximately 308.1 million in Europe, representing annualized growth of 4.6%. On a consolidated basis, nine months operating cash flow jumped to Euro 10.1 billion ($12.5 billion) from Euro 7.6 billion ($9.4 billion) in the year-ago period.

We believe offloading non-core assets along with raising further capital will fulfill the company's plans to raise Euro 7-8 billion ($9-$10.3 billion) every year till 2015, in order to deal with its mounting debt. Moreover, as the highly competitive European market is gradually heading towards its saturation point, the company will require to venture into alternative markets for future expansion. With a smartphone penetration of as low as 20% in Latin America provides the best long-term opportunity for Telef.

Though the company remains bullish on its European revival, we remain apprehensive that a double-dip Spanish recession along with a decline in consumer spending in Europe remain the major concerns for the company and could limit Telef's future success. We thus maintain a short-term Zacks Rank #5 (Strong Sell) on Telef.

Steady Flu Supplies at Safeway

In its concerted effort to meet the rising demand for vaccines in the ongoing flu season, Safeway Inc. (SWY) supplied its U.S. pharmacies with an additional 200,000 doses of flu vaccines. These can now be administered to customers on site.

Based on the reported cases and data by Centers for Disease Control (CDC), this has been the worst flu season in a decade with 47 states recording widespread flu activity. According to CDC, the spread of flu increased across the U.S. by Jan 11, 2013. Considering that flu activity in the U.S. spikes usually in Jan or Feb, Safeway's decision appears to be a rational and lucrative opportunity to garner incremental revenues.

As per management, the shipment was necessary to meet the demand for flu vaccine stocks at one of the largest food and drug retailers in North America. Moreover, to stimulate demand and encourage consumers to take flu vaccines, Safeway is offering a 10% discount coupon on the next grocery purchase to every customer who receives a flu vaccine at Safeway Pharmacy.

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