NEW YORK ( TheStreet) -- Citigroup analysts recently upgraded the telecom sector to overweight from neutral, citing the sector is poised to outperform in valuation terms and seasonality.According to a report issued by Fitch Ratings, the U.S. Telecom and Cable Sector's liquidity has remained strong enabling issuers to diversify revenue profiles through acquisitions beyond their core legacy services, and issuers remain well positioned in the face of economic uncertainty. The sector's second-quarter liquidity has remained strong with 91% of committed facilities available for borrowing, and total liquidity exceeding the aggregate 2011, 2012, and 2013 maturities. Additionally, favorable top-line growth and expanding margins have increased EBITDA levels, leading to stable leverage as debt levels have increased. These five telecom stocks have potential upsides ranging from 9% to 36%. The average buy and hold rating for these stocks is 58% and 41%, respectively, according to analyst estimates compiled by Bloomberg. The stocks are arranged in ascending order of upside potential.
5. Verizon Communications ( VZ), a holding company, provides communication services in two segments: Domestic Wireless and Wireline. Within Wireline, it provides voice, Internet access, broadband video and data, Internet protocol (IP) network services, network access, long distance and other services. The company reported consolidated revenue of $27.5 billion for the second quarter of 2011, an increase of 6.3% year-over-year. It swung to diluted earnings per share of 57 cents compared to a loss of 42 cents per share and adjusted non-GAAP EPS of 51 cents in the year-ago quarter. Total connections in the wireless segment grew 6.6% to 106.3 million. Cash and cash equivalents increased to $6.2 billion at the end of June 2011 from $4.8 million in the same month prior year. Early September, Verizon declared quarterly dividend of 50 cents per share, up 2.6% from the prior quarter. The dividend payouts for the first half of 2011 totaled $2.8 billion. Verizon is scheduled to release its third-quarter earnings on Oct. 21, and is likely to record earnings per share of 56 cents, vs. 31 cents in the same quarter prior year, according to a consensus estimate of analysts polled by Bloomberg. Sales are seen growing 5% to $27.9 billion with gross margin increasing 163 basis points to 59.15%. Of the 35 analysts covering the stock, 40% recommend a buy and 57% rate a hold. Data from Bloomberg has analysts forecasting the stock gaining 8.5% to $38.82 in the upcoming 12 months.