key calls

Key Calls (Verizon May Be Too Damn Expensive)

"Can you hear me now?"

As tipped earlier in today’s summary of upgrades, downgrades, and initiations, Wells Fargo has cut Verizon to Market Perform from Outperform.

Basically, the rationale is that the shares have gotten too damn expensive. The stock has risen too far since the election relative to the performance of the broad market, Wells figures.

Market’s not loving it…


“Can you hear me now?”…

Via Wells Fargo

We are downgrading shares of VZ from Outperform to Market Perform. This is NOT a call on its Q4’16 earnings. Rather, we do not think VZ’s outperformance since the presidential election (+10.1% vs. S&P of +5.0%) is sustainable given growth headwinds in 2017. While we still favor VZ’s network superiority and FCF generation, we struggle with nearterm catalysts. We believe Street estimates for 2017 revenue are too high and do not fully factor in headwinds which include: (a) enhanced competitive intensity from TMUS and S, (b) service revenue pressure from migrating its base to installment plans (EIP,) (c) lack of significant scale in its emerging growth business, (d) perceived need to buy more spectrum in secondary market transaction remains overhang. Our 2017E revenue is $125.5B vs. Street consensus at $126.5B. We are lowering our valuation range to $53-55 from $56- 58, which equates to 13.2-13.7x EPS. This is a slight discount to its 10-year historical P/E average of 13.6x.




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