Turkcell: Zacks’ Bear of the Day Play

Although the U.S. economy continues to pick up steam, many foreign markets remain in a difficult spot. This is especially true for countries with weak currencies, as a strong dollar is leading to severe problems for a number of nations across the globe.

Take Turkey for example. The country’s lira is at an all-time low against the dollar, and this is reverberating throughout the nation’s economy. It also doesn’t help that elections are fast approaching in Turkey and that the current prime minister is pressuring the central bank to cut rates in order to boost growth ahead of the vote.

This compromising situation of the central bank’s independence is obviously troubling to a few market participants, and the focus on the rate cuts is hitting the lira in the process. The easing move is also undoing some of the inflation-fighting work that the Turkish central bank has been doing, keeping the rate of price increases well above the official 5% target.

Company Specific Impact

As you might expect given these macro concerns, the Turkish stock market has been a chronic underperformer lately. In fact, the country’s top ETF, TUR, is down over 11% in the past month, and nearly 19% over the last 90 days, showcasing just how much these lira issues and economic concerns have hit equities in the country for dollar denominated investors.

But if you are looking for a stock specific route, one of the top ways for investors to gain exposure to Turkey is via the country’s telecommunications giant Turkcell (TKCSnapshot Report). This behemoth is one of the few Turkish stocks trading on U.S. exchanges and it has been a great example of the woes hitting the nation.

Shares of TKC have crumbled by over 15% in just the past month alone, while they are down close to 25% over the past two years. So clearly, the hits for TKC are really just starting, suggesting this period will be an extremely difficult one for Turkcell.

This is especially true when one considers the recent earnings estimate revision trend for TKC. By this metric, it looks to be a very difficult period for Turkcell, and that investors should ratchet down their expectations for this company in the near term.

Earnings Estimates

Recent earnings estimates for TKC have been down, meaning that analysts have been scaling back their expectations for Turkcell in both the short and long term periods. This is particularly the case if investors look to the full year earnings period as this is where the trouble for TKC really lies.

In this key time period, estimates have fallen from $1.48/share in EPS 30 days ago to just $1.26/share today. Meanwhile, the most accurate estimate comes in at just $1.11/share, a decrease of over 11% from the current consensus, meaning that the most recent estimates have been lower and that more pain could be ahead for TKC.

Add in the severe currency issues and the political risks, and it becomes hard to justify a purchase of TKC here, even if the company is trading at a cheaper level in an otherwise defensive industry. That is why we currently have TKC as a Zacks Rank #5 (Strong Sell) and are looking for more underperformance from this company in the months ahead.

Other Picks

Clearly, Turkey is not a country investors want to be in for the short term. There is great volatility ahead and the political situation isn’t one that you want to be a part of right now.

Unfortunately, the wireless non-us segment isn’t exactly looking great right now overall, as it is in the bottom 17% of all industries. But if you are looking for better choices in this space, either Blackberry (BBRY) or China Mobile (CHL) could be interesting picks.

Both of these companies have a Zacks Rank #2 (Buy), and have seen their ranks get upgraded in just the past week alone. So if you are hoping to remain in the foreign telecom market, definitely take a look at either of these two companies which have rising earnings estimates instead of the in-trouble TKC.

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