NEW YORK (TheStreet) -- Shares of Telefonica (TEF - Get Report) are down -0.24% to $16.49 after it was reported that the Spanish firm is in talks to sell its stake in Telecom Italia (TI - Get Report) in a move that could ease regulatory pressure in Brazil's wireless market, according to the Brazilian newspaper Folha de S.Paulo, Reuters reports.
Telefonica is negotiating a deal with investment funds to sell its stake in Telecom Italia, the paper said.
Telefonica is left with a nearly 15% direct stake in the Italian company after other investors voted to dismantle their controlling bloc.
TheStreet Ratings team rates TELEFONICA SA as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate TELEFONICA SA (TEF) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, reasonable valuation levels and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to its closing price of one year ago, TEF's share price has jumped by 34.75%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, TELEFONICA SA has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- Although TEF's debt-to-equity ratio of 2.61 is very high, it is currently less than that of the industry average. Along with the unfavorable debt-to-equity ratio, TEF maintains a poor quick ratio of 0.72, which illustrates the inability to avoid short-term cash problems.
- The gross profit margin for TELEFONICA SA is currently lower than what is desirable, coming in at 30.12%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 5.65% trails that of the industry average.
- You can view the full analysis from the report here: TEF Ratings Report