Verizon's stock dipped yesterday as two separate financial analyst firms released downgrade reports for the wireless carrier. Barclays analyst Kannan Venkateshwar downgraded the stock from “overweight” to “equal weight” the same morning that MoffettNathanson analyst Craig Moffett similarly downgraded Verizon stock to “neutral” from “buy.”
Both analysts remain upbeat on Verizon’s position in the future wireless market, ahead of further consolidation between T-Mobile and Sprint.
Overall, Venkateshwar remained positive on the stock, praising Verizon’s strategic positioning and its emphasis on network quality.
“While we are optimistic about Verizon’s near term growth trajectory, we believe this is already reflected in valuations,” Venkateshwar said in a note. “Verizon today is the only major distributor that has the balance sheet and therefore strategic optionality to pivot in whatever direction it so chooses. Looking out over the next couple of years, the only buyer remaining for media, cable or spectrum assets is likely to be Verizon.”
Verizon’s stock slipped 2.2% by the end of Tuesday, ending a four-month long rally for the carrier. The stock is now approaching the break-even point for 2018.
Venkateshwar noted that future capital spending on rolling out 5G services is still a large unknown for investors.
“Investors continue to be focused on Verizon’s capex trajectory due to its fixed wireless expansion next year,” Venkateshwar said. “Depending on how this proceeds, valuation context is likely to change into next year.”
MoffettNathanson analyst Craig Moffett similarly downgraded Verizon stock to “neutral” from “buy,” citing an apparent end to the period of aggressive price wars that has dominated the wireless sector since 2014. Moffett noted that earlier analyses indicated Verizon was well positioned to benefit from the proposed T-Mobile/Sprint merger.
“A three player market, it was thought, would be the cure for a seemingly endless price war,” Moffett said in a note. “Well, don’t look now, but the wireless price war that began in 2014 appears to be over. Virtually every important metric in wireless has taken a turn for the better.”
“Verizon shares have enjoyed a welcome renaissance, and, since the end of February, have solidly outperformed the broader market on both an absolute and beta-adjusted basis,” Moffett said. “We still see further upside, but, unfortunately, not quite enough to warrant maintaining our buy recommendation.”