We are downgrading our recommendation on Vodafone Group Plc (VOD) to Underperform, primarily due to the complexity in Indian operations and tough conditions across Southern European markets. Fiscal 2011 earnings missed the Zacks Consensus Estimate but improved year over year on the back of higher revenues and the ongoing share repurchase plan.
Vodafone continues to face declines in service revenue and subscriber count, particularly in Southern Europe, due to weakness in the economy, regulatory pressure and stiff competition. Aggressive price competition in India and reductions in mobile termination rates would limit the upside potential of the stock.
Hence, we rate the stock Underperform with the price target of $26, based on 10.4x our fiscal 2012 EPADS estimate.
