We maintain our Buy rating and the same valuation target for NTT DoCoMo, Inc. (DCM), the largest wireless service provider in Japan. The company commands approximately 50% of the Japanese cellular market. The introduction of discount-priced service plans progressed as DCM's customer churn rate improved significantly.
In order to maintain its leadership position, the company launched a sales promotion to popularize its FOMA 905i series handsets, which enable users to access two phone numbers and two e-mail addresses with a single device. DCM upgraded 96% of its total coverage area with 3G HSDPA technology and is consolidating eight regional sales divisions to streamline operating costs, while seeking expansion opportunities outside Japan.
DCM is currently trading at 13.5x P/E to our fiscal 2009 earnings estimates. This is at a significant discount to both the peer group (other Asian carriers) and the S&P 500 average. With respect to other selected valuation metrics, the stock is also trading well below its peers. According to our analysis, DCM maintains technical superiority with large scale global deployments of W-CDMA technology, facilitating the company to offer compatible international advanced roaming capabilities to its subscribers.
Successful implementation of its interoperable LTE network provides a service differentiation over competing carriers. We remain positive regarding the commercial success of FOMA 905i and FOMA 705i mobile handsets and believe the current valuation of the stock does not adequately reflect its full value. We set a six-month target price of $18 based on a forward P/E multiple of 15.7x our fiscal 2009 earnings estimate.
Nalak Das contributed to the report.
Read the full analyst report on DCM
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