The Zacks Analyst Blog Highlights:Vodafone Group, Telefonica, France Telecom, Deutsche Telekom and Deckers Outdoor

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Jun 19, 2012, 09:30 ET

CHICAGO, June 19, 2012 /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 Vodafone Group Plc (Nasdaq:VOD), Telefonica S.A. (NYSE:TEF), France Telecom (NYSE:FTE), Deutsche Telekom (OTC:DTEGY) and Deckers Outdoor Corporation (Nasdaq:DECK).

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Here are highlights from Monday's Analyst Blog:

EU Mobile Carriers to Consolidate

Economic conditions in the Eurozone are becoming worse with the potential exit of Greece and bailout plan in Spain, rendering challenges to mobile operators. This sets the stage for European Union (EU) mobile companies to plan a major consolidation.

With the cell phone markets in Western Europe being saturated, these carriers are unable to produce high enough margins. The surging demand for data is much higher than the services provided by these carriers.

According to the reports from Solon Management Consulting GmbH & Co, data demand in Germany -- the strongest and most powerful region of EU -- is expected to increase 15-fold over the next five years. These will double operating network expenses to 23% of revenues in 2016 from 12% of revenues in 2011.

The EU mobile operators are facing increased hurdles from European Union regulations, economic uncertainty, financial inflexibility and limited capacity. They are in need for more spectrums to fulfill the rising data demand. The carriers are looking for new avenues of growth to curtail their costs as well as fund their LTE services, which are not expected to reach European markets until 2014 or 2015.

The EU carriers are taking steps for consolidation, often through alliances with rivals, to achieve economies of scale. The latest development was seen in the U.K., where the second and the third largest telecom operators extended their network sharing alliance. Vodafone Group Plc (Nasdaq:VOD) and O2 U.K., a unit of Telefonica S.A. (NYSE:TEF) plan to combine their wireless phone grids in Britain to boost efficiency and increase their 2G and 3G coverage.

The network-sharing agreement would also enable the companies to split the cost of building LTE technology-based networks next year. This alliance will give head-to-head competition to the market leader Everything Everywhere, a joint venture between France Telecom (NYSE:FTE) and T-Mobile, a unit of Deutsche Telekom (OTC:DTEGY).

In Sweden, Norwegian operator Telenor and Swedish operator Tele2 are looking for ways to merge their operations to cut costs and build LTE networks. In addition, O2 Germany, a unit of Telefonica, and E-Plus, a unit of Dutch phone company Royal KPN NV, are also exploring the possibilities of a merger.

For the short term, Vodafone, France Telecom and Deutsche Telecom retain the Zacks #3 (Hold) Rank while Telefonica retains a Zacks #4 (Sell) Rank.

Bearish on Deckers

Deckers Outdoor Corporation's (Nasdaq:DECK) disappointing first-quarter 2012 results and dismal fiscal 2012 outlook compelled us to take a bearish stance on the stock. Consequently, we downgraded our recommendation to Underperform with a target price of $44.00. Earlier, we had a Neutral view on the stock.

Deckers posted lower-than-expected first quarter results as unfavorable weather conditions adversely impacted the sales of UGG boots. The rise in sheepskin prices (up 40% from the 2011 level) and increased operating expenses also hurt the bottom line. As a result, management lowered its fiscal 2012 outlook.

The first quarter earnings of 20 cents a share missed the Zacks Consensus Estimate of 25 cents, and dropped more than 50% from 49 cents earned in the prior-year quarter.

Management now anticipates fiscal 2012 earnings to decline between 9% and 10%. Earlier, the company had projected earnings to remain flat with the prior year. For the second quarter, Deckers predicts loss per share of 60 cents.

Total revenue is now expected to increase 14% during 2012, one percentage point lower than what was forecast earlier. Deckers now anticipates its UGG brand sales to rise approximately 10% and Teva brand sales to increase in the low-to-mid single-digit range, whereas other brand sales are expected to decline by approximately 15%.

Previously, the company had estimated 11% growth in the UGG brand and 10% increase in Teva brand sales. Management had predicted sales to remain flat for the other brand.

Deckers also forecast a gross profit margin contraction of 250 basis points during fiscal 2012 due to increases in costs of goods sold and closeout sales level, partly offset by a calculative price rise, and higher contribution from retail sales and the Sanuk brand.

We believe that the company's over-reliance on the UGG brand is a matter of concern. In the event of stagnation or decline of UGG sales growth, Deckers' overall results will be affected adversely. This is because the percentage of contribution from the company's other brands are too small to offset any slowdown in UGG sales.

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