Turkcell Q2 Earnings Preview: Business Is Overvalued (Rating Downgrade)

Core Viewpoint - Turkcell's stock has appreciated by 20% since the last analysis, outperforming the S&P 500, primarily due to improved inflation news, but concerns about overvaluation have led to a downgrade from hold to sell [3][5][18] Company Performance - Turkcell is expected to report Q2 2024 revenue of $1.13 billion, reflecting an 18% sequential increase and double-digit year-over-year growth, aligning with company guidance despite a Q1 miss [6] - The company has a mixed history of meeting EPS consensus but a more favorable record in revenue delivery, complicating earnings expectations [6][7] Market Conditions - Inflation in Turkey, while easing, remains historically high near 60%, continuing to pressure the company's cost base and margins [4][13] - The Turkish telecom market is mature, with a projected CAGR of 3.52% through 2029, limiting growth potential for Turkcell despite being the largest player with a 41% market share [12][11] Valuation Analysis - A DCF analysis yields a price target of $7.00, indicating a 10% downside from current prices, based on assumptions of revenue growth and inflation trends [8][18] - Revenue projections for Turkcell show growth from $3.626 billion in 2023 to $3.880 billion in 2024, with net income expected to rise from $425 million to $469 million in the same period [9] Future Outlook - Upside potential for Turkcell hinges on rapid inflation decline, continued pricing power, and acceleration in digital business growth, with current trends suggesting limited upside [15][17][18] - The company is well-managed, but macroeconomic factors and recent stock price increases pose significant risks to future growth prospects [18]