Analysts Michael Bowen and Trevor Upton downgraded the telecom giant to "sector perform" from "outperform," with no price target set for the stock. The analysts said increased competition in the wireless market may result in lower EBITDA margins for Verizon; the potentially lower margins are the cause for the downgrade.
Bowen and Upton expect lower margins because of recent moves from T-Mobile (TMUS). They cite a recent consumer tech survey that said Verizon "had the highest percentage of destination switchers to T-Mobile." The analysts expect Verizon to fare better than AT&T (T) and Sprint (S) in the wake of T-Mobile's plans to pay the early termination fees of those who switch to the smaller carrier, but the offering will still have an impact.
The Pacific Crest analysts estimate Verizon to earn $3.32 a share in 2014, up from the company's reported earnings of $2.84 a share in 2013. In its fourth-quarter earnings report on Tuesday, Verizon reported adjusted earnings of 66 cents a share, just above analysts' estimates of 65 cents. Verizon's earnings were up significantly from 38 cents a share in the same period last year, which was impacted by Superstorm Sandy.The telecom giant posted fourth-quarter revenue of $31.1 billion, an increase of 3.4% from the prior year. Analysts surveyed by Thomson Reuters were looking for revenue of $31.02 billion. Verizon said it added 1.7 million Verizon Wireless customers in the fourth quarter. TheStreet Ratings team rates VERIZON COMMUNICATIONS INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about its recommendation: "We rate VERIZON COMMUNICATIONS INC (VZ) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, good cash flow from operations, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity." Highlights from the analysis by TheStreet Ratings Team goes as follows:
- VZ's revenue growth has slightly outpaced the industry average of 3.5%. Since the same quarter one year prior, revenues slightly increased by 4.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Telecommunication Services industry. The net income increased by 40.1% when compared to the same quarter one year prior, rising from $1,593.00 million to $2,232.00 million.
- Net operating cash flow has increased to $11,239.00 million or 18.46% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -7.14%.
- The gross profit margin for VERIZON COMMUNICATIONS INC is rather high; currently it is at 63.80%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 7.37% trails the industry average.
- VERIZON COMMUNICATIONS INC has improved earnings per share by 39.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, VERIZON COMMUNICATIONS INC reported lower earnings of $0.31 versus $0.86 in the prior year. This year, the market expects an improvement in earnings ($2.83 versus $0.31).
- You can view the full analysis from the report here: VZ Ratings Report.
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