Telefónica (NYSE:TEF) is one of the most undervalued telecom stocks to invest in. On September 8, Telefonica CEO Marc Murtra outlined his vision for a consolidated European telecoms market, stating that the company is looking to acquire telecom assets in Europe and Brazil while selling off its Spanish-speaking Latin American assets. The strategy is part of a broader plan to increase scale and maintain the company’s investment-grade credit rating. Murtra argues that Europe’s telecom market is too fragmente ...

Core Points - Spain has canceled a €10 million contract for upgrading public fiber optic networks using Huawei equipment due to pressure from the US and EU [1][5] - The contract was initially approved to enhance the RedIRIS infrastructure, which connects over 500 universities and research centers in Spain [1][2] - The Spanish government cited "digital strategy and strategic autonomy" as reasons for the cancellation, indicating a shift in policy [1][5] Group 1 - The contract aimed to upgrade the IP connection service bandwidth from 100Gbps to 400Gbps to enhance network security and meet new demands [2] - The contract was awarded to Telefónica, with Huawei equipment specified due to its previous use in a 2020 upgrade contract worth €5.5 million [4] - The upgrade was planned to be completed within five months across multiple locations, including major cities like Madrid and Valencia [4] Group 2 - Huawei has denied security risk allegations and emphasized compliance with local laws and regulations [6] - Spain does not have a "high-risk supplier" list like other EU countries, allowing for the procurement of Chinese equipment [6][7] - The Spanish Interior Ministry clarified that the collaboration with Huawei posed no security risks and was independently verified [7] Group 3 - The US has criticized Spain's contracts with Huawei, alleging potential espionage, while the EU has pressured member states to exclude "high-risk suppliers" [7][8] - Chinese officials have condemned US actions as bullying and emphasized the need for fair treatment of Chinese companies in Spain [8]

Core Insights - Telefonica, S.A. reported a significant decline in net income for Q2 2025, with a net income of €155 million, down 67% year-over-year, and basic earnings per share (EPS) of €0.02, matching the consensus estimate [1][11] - Quarterly revenues decreased by 3.7% year-over-year to €8.95 billion ($10.2 billion), falling short of consensus estimates by 8.83%, but showing an organic growth of 1.5% in core markets [2][11] - The company is strategically reducing its exposure to lower-margin Latin American operations, having completed divestitures in Argentina and Peru, and is progressing with deals in Uruguay, Ecuador, and Colombia [3] Financial Performance - Adjusted EBITDA for the quarter was €2.9 billion, reflecting a year-over-year increase of 1.2%, while operating income decreased by 6.7% to €1.03 billion [12] - Cash flow from operating activities for the first half of the year was €4.5 billion, slightly down from €4.6 billion in the previous year, with free cash flow of €505 million for the quarter [13] Business Unit Performance - Telefonica Espana saw a revenue increase of 1.9% year-over-year to €3.2 billion, supported by strong customer additions and price increases [4] - Telefonica Deutschland's revenue decreased by 2.4% to €2 billion, with a quarterly adjusted EBITDA margin of 31.3% [5] - VirginMedia-O2 U.K. reported a revenue decline of 5.5% to €3 billion, with an adjusted EBITDA margin of 38.2% [6] - Telefonica Brasil's revenues increased by 7.1% to €2.3 billion, driven by strong contract and FTTH revenue growth [7] - Telefonica Hispam's revenues fell by 2.9% to €1.04 billion, primarily due to weaker results in Colombia [10] Strategic Outlook - For 2025, Telefonica expects year-on-year organic growth in revenues, EBITDA, and EBITDAaL - CapEx, aiming to keep CapEx below 12.5% of sales and maintain free cash flow at 2024 levels [14] - The company reaffirmed its commitment to shareholder returns with a confirmed dividend of €0.30 per share for 2025 [14]

Financial Data and Key Metrics Changes - Revenue reached almost EUR 9 billion in the quarter, growing 1.5% organically [14] - EBITDA was nearly EUR 3 billion, up 1.2% [14] - Free cash flow turned positive to EUR 5 million in the second quarter, an improvement of EUR 718 million versus Q1 [14] - Net financial debt decreased 5.5% year on year to EUR 27.6 billion as of June [15] - Earnings per share from continued operations amounted to EUR 0.07 in the second quarter [15] Business Line Data and Key Metrics Changes - In Spain, the company achieved its best Q2 net adds since Q3 2018, with a convergence churn rate of 0.8%, the lowest in over 11 years [23][24] - Brazil saw a 6% increase in contract accesses and a 42% increase in revenue from cloud services [30] - Telefonica Deutschland reported a decline in EBITDA by 6% year on year, primarily due to the migration of the one on one customer base [34] Market Data and Key Metrics Changes - Spain and Brazil together represent 70% of group EBITDA, showing improving trends this quarter [15] - The UK market remained competitive, with Virgin Media O2 focusing on customer loyalty and protecting value [36] - In Germany, the mobile service revenue declined year on year, reflecting the impact of the one on one customer migration [34] Company Strategy and Development Direction - The company is focused on customer-centric strategies, operational excellence, and creating value under strict financial discipline [8] - Strategic choices are aimed at strengthening the competitive position in the European telecom industry [8] - The company is concentrating resources in select markets where it has competitive advantages, as evidenced by the sales of operations in Argentina, Peru, and other Latin American countries [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing transformation at Telefonica, which is expected to create value for shareholders [8] - The company reiterated its full-year 2025 guidance across metrics, expecting revenue and EBITDA to continue growing [17] - Management acknowledged the variable macro environment but emphasized the focus on managing controllable factors [8] Other Important Information - The completion of the copper shutdown in Spain marks a significant milestone, freeing up resources for other endeavors [10] - The company aims to achieve a simplified organization that can move faster and compete more effectively [13] - Telefonica has been recognized for its sustainability efforts, being named the second most sustainable company in the world by Time Magazine [46] Q&A Session Summary Question: Expectations for growth in Spain and the UK - Management aims for revenue growth in Spain to exceed 2024 levels, driven by improved customer experience and B2B momentum [53] - In the UK, management acknowledged the competitive market and emphasized ongoing efforts to manage retention and prevent churn [68] Question: Strategic review and balance sheet considerations - Management stated that leverage is relevant but not strategically limiting, emphasizing the importance of maintaining investment-grade ratings [79] - The company is looking to take calculated risks to achieve larger economies of scale [81] Question: Cybersecurity and technology investments - Management highlighted the changing conditions in the cybersecurity market driven by European political will and defense investments [65] - The company is exploring opportunities in technology but does not see a need for significant CapEx in cybersecurity at this time [106] Question: Updates on fiber path stake sale and infrastructure ownership - The fiber path sale process is ongoing and not part of the strategic review [106] - Management believes that owning core infrastructure is essential for operational efficiency and service offerings [115]

Financial Data and Key Metrics Changes - Revenue reached almost EUR 9 billion in Q2 2025, growing 1.5% organically, while EBITDA was nearly EUR 3 billion, up 1.2% [14][15] - Free cash flow turned positive at EUR 5 million in Q2, an improvement of EUR 718 million compared to Q1, with a total of EUR 291 million in the first half [14][44] - Net financial debt decreased by 5.5% year on year to EUR 27.6 billion as of June [15] Business Line Data and Key Metrics Changes - In Spain, the company achieved its best Q2 net adds since Q3 2018, with a convergence churn rate of 0.8%, the lowest in over eleven years [16][23] - Brazil reported a 6% increase in contract accesses and a 42% increase in revenue from cloud services, with overall revenue growth of 7% [28][29] - Germany faced challenges due to the B2B transformation, but maintained solid consumer momentum with stable contract churn at 0.9% [32] Market Data and Key Metrics Changes - Spain and Brazil together represent 70% of group EBITDA, showing improving trends in Q2 [15] - The UK market remained competitive, with O2 contract churn improving to 1% [35] - The Hispan region posted positive contract net adds for the second consecutive quarter, driven by improved network quality in Colombia [39] Company Strategy and Development Direction - The company is focused on customer-centric strategies, operational excellence, and creating value through disciplined financial management, prioritizing Europe and Brazil [8][10] - A strategic review is underway, with plans to unveil conclusions in the second half of the year [8][48] - The company aims to simplify its organization and concentrate resources in select markets where it has competitive advantages [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing transformation at Telefonica, which is expected to create shareholder value and strengthen competitive positioning [8][10] - The company reiterated its full-year 2025 guidance across metrics, expecting revenue and EBITDA to continue growing [17][18] - Management acknowledged foreign exchange headwinds but remains optimistic about free cash flow improvement in the second half of the year [14][18] Other Important Information - The completion of the copper shutdown in Spain marks a significant milestone, allowing for resource reallocation [10][11] - The company has been recognized for its sustainability efforts, being named the second most sustainable company in the world by Time Magazine [46][47] Q&A Session Summary Question: Expectations for growth in Spain and the UK - Management aims for revenue growth in Spain to exceed 2024 levels, driven by improved customer experience and B2B momentum [51][53] - In the UK, management noted various opportunities but could not disclose specifics regarding M&A plans [55] Question: Cybersecurity and tech investments - Management highlighted the changing landscape for cybersecurity in Europe, driven by political will and defense investments [60][64] - The company sees potential in capturing opportunities in cybersecurity due to its experience in integrating and managing such products [66] Question: EBITDA outlook for Germany - Management indicated that the migration of the one on one customer base is a two-year journey, with expectations for EBITDA stabilization and growth thereafter [112][117] Question: Infrastructure ownership - Management emphasized the importance of owning core infrastructure for operational efficiency and service offerings [118]

Financial Performance - Telefónica Group reported H1 2025 revenue of €18013 million, a decrease of 3.3% year-over-year, but an organic growth of 1.5%[20] - Service revenue reached €16263 million, down 3.3% year-over-year, with an organic increase of 1.6%[20] - The company's H1 2025 EBITDA was €5867 million, a 4.6% decrease year-over-year, but an organic growth of 0.8%[20] - Net Financial Debt stood at €27609 million, a decrease of 5.5%[20] - Free Cash Flow (FCF) from continuing operations was €291 million, a decrease of 42.4%[20] Strategic Initiatives - Telefónica is on track with its strategic review for H2 2025, focusing on customers, infrastructure advantages, industrial rationalization, and financial flexibility[13, 97] - The company is accelerating portfolio transformation in Hispam, with the sale of T Argentina for €12 billion and binding agreements for T Colombia (~€368 million), T Uruguay (FV ~€389 million), and T Ecuador (FV ~€330 million)[16, 17, 19] Operational Highlights - Spain experienced improved EBITDAaL-CapEx (+2.8%, +0.8% quarter-over-quarter) and consistent service revenue growth (+1.0%) and EBITDA growth (+1.0%)[22] - Brazil showed record EBITDA growth (+8.6%) since Q4 2023 and a robust EBITDAaL-CapEx margin (16.3%, +1.0 percentage points)[22] - Germany is focused on mitigating the impact of 1&1 migration, with commercial momentum and B2P transformation, achieving an H1 EBITDAaL-CapEx margin of 12.0% (+0.1 percentage points)[22] Guidance and Sustainability - The company reaffirmed its 2025 guidance, expecting organic revenue growth, organic EBITDA growth, organic EBITDAaL-CapEx growth, CapEx/Sales less than 12.5% organic, and FCF similar to 2024[25] - Telefónica Tech's revenue for H1 2025 was €1074 million, with an organic growth of 9.6%[78] - Telefónica Infra has 29.1 million FTTH JV premises passed, representing 35% of Telefónica's FTTH footprint[81]

Group 1 - NiSource (NI) is currently outperforming its peers in the Utilities sector, with a year-to-date return of approximately 14%, compared to the sector average of 11.2% [4][5] - NiSource holds a Zacks Rank of 2 (Buy), indicating a positive outlook based on earnings estimates and revisions [3][5] - The Zacks Consensus Estimate for NiSource's full-year earnings has increased by 0.1% over the past quarter, reflecting improving analyst sentiment [3] Group 2 - The Utilities sector consists of 108 individual stocks and currently has a Zacks Sector Rank of 1, indicating strong overall performance [2] - NiSource is part of the Utility - Electric Power industry, which includes 59 stocks and is ranked 74 in the Zacks Industry Rank, with stocks in this group gaining about 11.2% year-to-date [5] - Another outperforming stock in the Utilities sector is Telefonica (TEF), which has returned 34.3% year-to-date and also holds a Zacks Rank of 2 (Buy) [4][6]

Core Viewpoint - The article compares Telefonica (TEF) and Telus (TU) to determine which stock is more attractive to value investors, highlighting TEF's stronger earnings outlook and better valuation metrics [1][3]. Valuation Metrics - TEF has a forward P/E ratio of 14.22, while TU has a forward P/E of 21.25, indicating that TEF is potentially undervalued compared to TU [5]. - TEF's PEG ratio is 0.83, suggesting a favorable valuation in relation to its expected earnings growth, whereas TU's PEG ratio is significantly higher at 5.05 [5]. - TEF's P/B ratio stands at 1.2, compared to TU's P/B of 2.08, further indicating TEF's relative undervaluation [6]. Earnings Outlook - TEF is noted for having an improving earnings outlook, which contributes to its higher Zacks Rank of 2 (Buy), compared to TU's Zacks Rank of 3 (Hold) [3][7].

Core Insights - Investors are evaluating Telefonica (TEF) and Telus (TU) for potential value opportunities in the Diversified Communication Services sector [1] Valuation Metrics - Telefonica has a Zacks Rank of 2 (Buy), indicating a positive earnings outlook, while Telus has a Zacks Rank of 3 (Hold) [3] - TEF's forward P/E ratio is 13.39, significantly lower than TU's forward P/E of 21.68, suggesting TEF may be undervalued [5] - TEF has a PEG ratio of 0.78, while TU's PEG ratio is 5.15, indicating TEF's expected earnings growth is more favorable [5] - TEF's P/B ratio is 1.20 compared to TU's P/B of 2.12, further supporting TEF's valuation advantage [6] - Based on these metrics, TEF holds a Value grade of A, while TU has a Value grade of C, making TEF the more attractive option for value investors [6]

Group 1: Momentum Investing Overview - Momentum investing involves following a stock's recent trend, with the aim of buying high and selling higher, capitalizing on established price movements [1] - The Zacks Momentum Style Score helps define momentum characteristics, with Telefonica (TEF) currently holding a Momentum Style Score of B [2] - Style Scores complement the Zacks Rank, which has a strong track record of outperformance; TEF has a Zacks Rank of 2 (Buy) [3] Group 2: Performance Metrics - TEF shares have increased by 2.12% over the past week, outperforming the Zacks Diversified Communication Services industry, which rose by 0.47% [5] - Over the last three months, TEF shares have risen by 14.84%, and by 12.9% over the past year, compared to the S&P 500's increases of 1.99% and 12.34%, respectively [6] - The average 20-day trading volume for TEF is 635,540 shares, indicating a bullish sign if the stock is rising with above-average volume [7] Group 3: Earnings Outlook - In the past two months, two earnings estimates for TEF have increased, while none have decreased, raising the consensus estimate from $0.33 to $0.40 [9] - For the next fiscal year, two estimates have also moved upwards with no downward revisions during the same period [9] Group 4: Conclusion - Considering all elements, TEF is rated as a 2 (Buy) stock with a Momentum Score of B, making it a potential pick for near-term gains [11]