Updated from April 25 with additional information.
Verizon (VZ) has abandoned its long-stated goal of returning to its debt ratings prior to the $130 billion buyout in 2014 of the minority stake in its wireless unit, the telecom noted in a Friday filing with the Securities and Exchange Commission. Verizon will be hosting an investor call with analysts on Monday afternoon to discuss the change and other issues.
The shift raises questions about whether Verizon would be more open to an acquisition or other moves that would push its debt levels higher, or if it were merely acknowledging the reality of its balance sheet.
"We believe that Verizon remains committed to lower leverage and its current business plan does not include any change to capital allocation, such as shareholder returns," Moody's analyst Mark Stodden wrote in a report on Friday. Verizon's leverage is near the "upper threshold" of the telecom's Baa1 credit rating, Stodden wrote, and the analyst suggested that the telecom would not want to jeopardize its score.
"However, we also acknowledge that Verizon's recent public comments suggest a growing tolerance for transformative M&A, which could result in higher leverage and a potential ratings change," Stodden wrote.
MoffettNathanson analyst Craig Moffett suggested in a note on Monday that the FCC filing recognized that Verizon does not have "any serious hope of meeting their deleveraging targets" by the prior timeline. "Far from being an opening salvo for M&A, as many read the announcement, it should instead have been read as an admission that large scale M&A is increasingly out of reach," Moffett wrote, reiterating his view that Verizon's balance sheet cannot accommodate a mega deal such as a purchase of cable operator Charter (CHTR) .
Moreover, a wireless pact that Charter recently struck with Comcast (CMCSA) would essentially prevent a sale of the cable operator to Verizon.
The communications world is readying for consolidation. In late April, the FCC ended a quiet period blocking participants in a recent auction of wireless spectrum, ranging from the most of the big telecoms to Comcast and Dish (DISH) , from strategic talks. Meanwhile, the Trump administration's perceived regulatory permissiveness could open the door to larger deals.
Verizon CEO Lowell McAdam previously opened a can of worms recently with comments to Bloomberg that the telecom would entertain talks with Comcast, Walt Disney (DIS) or CBS (CBS) . Reports previously had linked Verizon to Dish, which has built up a portfolio of wireless spectrum licenses, and to cable operator Charter.
While Verizon would seem primed to take part in the deal frenzy, in earlier research MoffettNathanson analyst Moffett directed attention to the telecom's balance sheet. "It provides a welcome bit of sobriety to what has become a frustratingly speculative parlor game of who might buy whom in what is widely expected to be an M&A boom for the telecom industry," Moffett wrote.