The Zacks Analyst Blog Highlights: Telefonica, Vodafone Group, Silver Spring Networks, BT Group and CME Group

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Aug 19, 2013, 09:30 ET

CHICAGO, Aug. 19, 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 (NYSE:TEF-Free Report), Vodafone Group Plc. (Nasdaq:VOD-Free Report), Silver Spring Networks Inc. (NYSE:SSNI-Free Report), BT Group Plc. (NYSE:BT-Free Report) and CME Group Inc. (Nasdaq:CME-Free Report).

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Here are highlights from Friday's Analyst Blog:

O2 Wins UK Smart Metre Contract

O2, the UK subsidiary of Telefonica (NYSE:TEF-Free Report), has been selected as the preferred bidder for the smart metre implementation program by The Department of Energy and Climate Change (DECC) of UK.

The Spanish telecom giant has been selected by DECC to provide communication services in the midlands, East Anglia, Wales and Southern England. The 15-year contract is worth $1.5 billion. However, the company is currently negotiating with DECC over the next step and will provide further information on the contract in due course of time.

The smart metres will let households in UK to control their electricity and gas usage, thus enabling the customers to reduce energy bills. Additionally, the new smart metres tariffs will provide customers with cheaper electricity at times of low demands. The nationwide project is expected to install 53 million smart metres by 2020, which will provide real time information to the consumers about the amount they are spending on energy at a particular time.

Telefonica will act as a communication service provider to send the metre reading to the energy suppliers and data communication firms via its cellular network in the UK. Its network will be supported by the use of mesh technology to connect smart metres in areas with lack of network coverage.

The other companies who were pursuing for the contract include the consortium of Vodafone Group Plc. (Nasdaq:VOD-Free Report) and Silver Spring Networks Inc. (NYSE:SSNI-Free Report). Telefonica also competed with another group consisting of Arqiva, BAE Systems Detica and BT Group Plc. (NYSE:BT-Free Report), who have won the smart meter contract in the northern region of UK.

We believe that the contract will be a long-term revenue contributor to O2 in the UK, where the company struggles over low mobile tariffs and stiff competition. Furthermore, wining the contract ahead of rival Vodafone is a significant milestone for Telefonica in the UK.

Telefonica currently carries a Zacks Rank #3 (Hold).

CME Upped to Outperform

On Aug 14, 2013, we upgraded derivative exchange – CME Group Inc. (Nasdaq:CME-Free Report) to Outperform based on its improved growth momentum, which augurs sustained long-term growth.

Why the Upgrade?

CME Group has witnessed some moderation since its second-quarter 2013 results on Aug 1. Both operating earnings of 93 cents per share and total revenue of $816.1 million topped the Zacks Consensus Estimate of 90 cents and $806 million, respectively, during the second-quarter.

Both earnings and revenues exceeded the year-ago results by 25.7% and 2.5%, respectively. Overall, CME Group delivered positive earnings surprises in all of the last 4 quarters with an average beat of 2.4%.

A surge of 15% in average daily volume along with higher clearing and transaction fees (accounting for about 85% of the total revenue)boosted results, partially offset by lower average rate per contract. Further, a 5.6% decline in operating expenses helped operating margin rebound to its historical highs of above 60% to 62.2% from 59.0% in the year-ago quarter.

Following the release of the second-quarter results, the Zacks Consensus Estimate for 2013 and 2014 remained intact at $3.17 and $3.67 a share, respectively, in the last 7 days. Meanwhile, the current estimates reflect 4.8% year over year growth in 2013 and 15.7% upsurge in 2014. With the Zacks Consensus Estimates for both 2013 and 2014 remaining steady, the company now has a Zacks Rank #3 (Hold).

What is the cause for the strong positive bias on the company? The sustained results in the first half of 2013 have instilled market confidence in the company. This is also reflected by the recent upgrade in outlook to stable from negative by S&P Ratings.

CME Group has the potential to reach new heights once the market stabilizes with its low-risk debt profile, improved operating cash flow and low capital expenditure. Moreover, the company's diversified product portfolio and strategic alliances bode well for improving operating leverage.

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