Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients.
What are we looking for?
While many technology stocks have had a blistering run in the market over the past 12 months, many of the top telecom and cable stocks have trailed. My colleague Rob Belanger and I thought we would have a look at the telecommunications sector.
The screen
We started with North American companies larger that $250-million in market capitalization and ranked them from the largest to the smallest.
EV/EBITDA (enterprise value divided by the earnings before interest, taxes, depreciation and amortization) is a value ratio that looks at a company the way a potential acquirer would because it includes debt. A low number is preferred.
EBITDA divided by the interest expense is used to see whether a company is profitable enough to pay its interest expense, which is the interest payable on any type of borrowings. A ratio of one indicates that a company has just enough interest coverage to pay off its interest expense. We are looking for a high number.
We are also showing the percentage of wireless subscribers who pay their bill based on the usage amount and are subject to the terms and conditions of a long-term contract. This metric signals a better-quality customer – and more stable cash flow.
ROE (return on equity) measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. A high number is favoured.
Operating margin is a measurement of what portion of a company's revenue is left over after paying for variable costs such as wages and inventory. If a company has an operating margin of 12 per cent, it means that it makes 12 cents before interest and taxes for every dollar of sales.
What did we find?
Verizon is the only company that outperformed the averages in all five categories. It operates in 150 countries and has 103 million wireless customers. Revenue for 2013 was $120.6-billion (U.S.).
AT&T outperformed in four categories, and the worst-performing Canadian company was Manitoba Telecom Services Inc.
Investors should contact an investment professional or conduct further research before buying any of the companies listed here.