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Verizon Downgraded On Threat Of Near-Term Challenges

Verizon VZ Downgraded On Threat Of Near-Term Challenges

Jennifer Fritzsche of Wells Fargo has downgraded Verizon Communications Inc. VZ 0.65% to Market Perform from Outperform, saying she does not think Verizon's outperformance since the presidential election is sustainable given growth headwinds in 2017.

Downgrade, Cut And Justification

Fritzsche, who also cut the valuation range to $53–$55 from $56–$58, said the headwinds include intensified competitive pressure from T-Mobile US Inc TMUS 1.09% and Sprint Corp S 3.02% and wireless revenue pressure from migrating its base to installment plans.

What's Ahead

Meanwhile, Fritzsche noted that Verizon lacks significant scale in its emerging growth business to drive faster growth.

“With PF wireline revenue likely to be roughly flat in 2017 and modest wireless growth, it will likely be difficult for VZ to deliver ‘GDP-like’ top-line growth in 2017 of 2+ percent,” Fritzsche highlighted.

Also, the analyst said the market’s perception that Verizon would need to buy more spectrum in secondary market transaction remains a near-term overhang on the shares.

As such, the analyst believes the Street estimates for 2017 revenue are too high and do not fully factor in the above headwinds. Fritzsche sees 2017 revenue of $125.5 billion versus Street consensus at $126.5 billion.

“We expect muted top-line growth in 2017 for wireless, 40 percent of its postpaid phone base is still on subsidized pricing, which we forecast will cause service revenues to decline -1.6 percent yr/yr in 2017,” Fritzsche continued.

At last check, shares of Verizon were down 0.54 percent to $52.44.

Image Credit: By Anthony92931 (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Sep 2016BarclaysMaintainsEqual-Weight
Sep 2016CitigroupMaintainsNeutral
Aug 2016Buckingham ResearchDowngradesNeutralUnderperform

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