Stock market selections are never black-and-white decisions, and investors often have to plough through a mountain of conflicting arguments before coming to a sound conclusion.
Today I am looking at Vodafone Group (LSE: VOD) (NASDAQ: VOD.US) and assessing whether the positives surrounding the firm’s investment case outweigh the negatives.
Revenues slippage continues
Last month’s interims again put Vodafone’s worrying top-line performance under the microscope. Although group revenues advanced 1.2% during March-September on a reported basis, to £22.03bn, from an organic perspective these actually dropped 3.2%. And service revenues rose just 0.1% on a reported basis to £20.04bn, which organically this represented a 4.2% drop.
A backdrop of worsening economic conditions and increased competition in Europe continues to weigh on demand for the firm’s services, and a 10.1% service revenue slippage in Southern Europe, to £4.48bn, more than offset a 4.6% rise in Northern and Central Europe to £9.47bn.
Investment ready to ratchet higher
However, the company is planning on investing big to rectify its enduring difficulties in Europe, and last month bolstered its extensive Project Spring organic investment programme by £1bn to £7bn through to 2016.
Vodafone has dedicated around £3bn of this to building its 3G coverage across Europe, as well as to speed up the rollout of its 4G services on the continent — the company currently operates 4G across 14 major markets. Furthermore, planned spend of £1.5bn on emerging markets Africa, the Middle East and Asia Pacific to improve 3G depth, as well as £1bn on unified services, bodes well for long-term growth.
German entry carries plump prospects
Furthermore, Vodafone’s foray into the European multi-services arena also carries significant growth potential. The company purchased Germany’s Kabel Deutschland this year for £6.6bn, a deal which gives it access to millions of new subscribers by offering television, broadband and telephone services.
The move could also prove a significant earnings driver for its embattled European mobile operations, providing a conduit for the firm to bolster the adoption of its own mobile telecoms services from customers in the continent’s largest economy.
Takeover not certain by any means
Still, the firm’s share price could come under heavy pressure should potential takeover talk fail to materialise. Despite an enduring backdrop  of revenues worries, talk of a potential buyout from the likes of AT&T has helped thrust the stock relentlessly higher, and Vodafone has gained more than 48% since the turn of the year.
A move from the American communications leviathan would undoubtedly make strategic sense. But Vodafone is not the only potential candidate up for grabs, while broker Berenberg noted recently that “rising political concerns over US eavesdropping may make European Commission approval of an AT&T move more challenging.”
A stellar stock pick
Regardless of how the takeover chatter turns out, I believe that Vodafone is primed with exceptional long-term potential to deliver chunky shareholder returns. Not only is the telecoms behemoth making all the right noises in terms of delivering future earnings growth, but it is also committed to keep its dividends rolling higher, and hiked the interim dividend 8% this month.