Why China Mobile Might Be Due for a Drop

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of China Mobile closed down 2% yesterday after Bank of Americadowngraded the telecom giant from neutral to underperform.

So what: Along with the downgrade, analyst Sidney Zhang reiterated his price target on the stock of $54.84 -- pretty much where it stands today -- suggesting that he sees limited upside at these levels. Chinese news outlets are reporting that MIIT -- China's telecom regulator -- may reduce the mobile voice rates China Unicom and China Telecom pay to China Mobile, and in Zhang's view, the possibility alone raises too much uncertainty over the shares.

Now what: Bank of America expects the stock to remain pressured in the short run. "We downgrade [China Mobile] to Underperform, as we believe the potential earnings impact will be significant to [China Mobile] and the overhang could persist for the next few months as MIIT will take some time to deliberate," noted6 Zhang. "While the 4G launch could help [China Mobile] better retain some customers in the near term, we don't think 4G will help its earnings in the next two to three years." Of course, with the stock now boasting a juicy dividend yield of 3.7%, long-term income investors might want to pounce on that short-sightedness.

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The article Why China Mobile Might Be Due for a Drop originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool owns shares of China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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