This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Verizon Playing Defense in $130B Verizon Wireless Deal

Stocks in this article: VZ VOD

NEW YORK ( TheStreet) -- Confirmation that Verizon (VZ) is talking with Vodafone (VOD) about buying its remaining 45% stake in Verizon Wireless may help shares in the telecom giant recover from their recent underperformance, however, a reported $130 billion acquisition could also pose long-term risks.

What appears to be a financially attractive deal for Verizon in today's still-low interest rate environment could also carry financial burdens that prove cumbersome to the firm's investors in coming years. Telecom sector profitability will have to hold up as the wireless industry matures and smartphone usage in the United States nears a saturation point for Verizon investors to truly see a benefit from any prospective deal.

Recent earnings reports, commentary and pricing plans from Verizon's low-cost competitors such as T-Mobile (TMUS) and Sprint (S) cast doubt on the sustainability of record wireless profit margins posted by the likes of Verizon and AT&T (T) in recent quarters.

T-Mobile saw its market share in the wireless industry grow for the first time in years in the second quarter, as the telecom firm reported net subscriber additions.

Sprint, meanwhile, forecasts that it will reverse chronic market share losses in 2014, as the company uses a recapitalization by SoftBank to complete its LTE network expansion. Sprint's second-quarter earnings also indicate that smartphone consumers are taking notice of the company's lower-priced unlimited data plans.

Both rivals could pose a big risk to Verizon's wireless profit margins, which eclipsed a 50% year-end target earlier in 2013. If one were to believe in the viability of T-Mobile and Sprint and the pricing of their wireless plans, it might indicate Verizon Wireless profit margins are near a peak.

Such a scenario would likely recast impressions of any potential deal with Verizon and Vodafone on the latter's 45% stake in Verizon Wireless. Verizon could be acting defensively in trying to acquire full control of Verizon Wireless and the near $10 billion in annual dividends that are paid to Vodafone as a minority owner. Verizon's margins could be nearing a peak and an acquisition of Verizon Wireless could be be seen as a way to engineer financially attractive earnings growth in coming years.

Share prices already say so much. Including Verizon's hefty 4%-plus dividend yield, the company's shares have underperformed the S&P 500 this year and in the past 52 weeks, according to Bloomberg data. On Thursday, Verizon shares rose over 2% to $47.82 on reports that a deal may be struck as early as Labor Day.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs