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Vodafone: Can 112 Million Subscribers Be Wrong?

By Mara Der Hovanesian

Is it time to dip into wireless? Followers of London's Vodafone Group (VOD), tops in world telecom services, with 112 million customers, say yes. For the six months ended Sept. 30, revenues rose 67%, and losses narrowed by 56%. (It would be profitable now if it weren't writing off goodwill from recent purchases.) "It has been stable as far as cash flow. People are going see Vodafone is really cheap," says Raymond Mills of T. Rowe Price International Growth & Income Fund. Vodafone is among his holdings.

Unlike other telecoms that overbuilt and overacquired, Vodafone has a clean balance sheet. Its debt-to-equity ratio is less than 11%, and its bonds are rated A by Standard & Poor's. At 18.6, ex-highflier Vodafone trades at six times Mills's estimate of 2003 earnings before interest, taxes, depreciation, and amortization (EBITDA), vs. an industry average of 7.5. Mills says the stock, which dropped to 12.8 in September, could gain 20% in a year. Leila Ghachem of J.P. Morgan Chase, which calls Vodafone a client, rates it a "strong buy." Gene Marcial is on vacation.

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