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.