CenturyLink, Inc. (CTL), VimpelCom Ltd (ADR) (VIP), Oi SA (ADR) (OIBR): The Message Is Not Important, Yields Are

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Communications Int’l Stock #3

The second largest communications provider in Latin America, Oi SA (ADR) (NYSE:OIBR), provides phone services (landline and wireless, Internet, and other digital solutions). Most recently, the company received its new CEO Zeinal Brava, who comes from Telecom Portugal, giving way to merger rumors. If the merge occurs, the domestic business will turn global in the back of Telecom.

In the short-term, Oi SA (ADR) (NYSE:OIBR) will settle in new management. Mr. Brava has to start addressing current stagnated indicators. For the long-term, the company has to reinvigorate the business model. Higher competition and a model close to exhaustion are putting pressure on management to continue growth through a new strategy.

Looking at finances, Oi SA (ADR) (NYSE:OIBR) is almost spotless if not for debt. Over the past decade revenue, net income, and cash flow have been on the rise. A rising operating margin has accompanied this growth, and today stands at 18.3%, 7 points above the industry average. Debt, however, has become a rock-in-the-shoe and management is expected to cut dividends in return.

Oi SA (ADR) (NYSE:OIBR) trades at 1.7 times its earnings, a 90% discount to the industry average, while its yield stands at 16.67%; the stock is a fair offer. I recommend holding until the merge occurs or the company diversifies operations.

One message

Although I recommended CenturyLink, Inc. (NYSE:CTL), VimpelCom Ltd (ADR) (NYSE:VIP) is my preference. Vimpel offers a higher yield and is present in less penetrated markets, and losing an asset may only mean a new important acquisition. On the other hand, Oi SA (ADR) (NYSE:OIBR) will only see better revenues after diversifying into other communications related services.

The article The Message Is Not Important, Yields Are originally appeared on Fool.com and is written by Damian Illia.

Damian Illia has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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