According to a Wall Street firm, due to decreased competition in the wireless carrier market, Verizon will become prosperous in the upcoming years.
Seeing low valuation vs. the market, UBS raised the Verizon’s rating to purchase from neutral on shares of Verizon Communications.
SunTrust Robinson Humphrey, in a similar move, also raised Verizon’s shares from hold on Wednesday because of “attractive” valuation.
On Tuesday, the stock of the wireless carrier surged 2.1% after the company reported better-than-expected revenue results. On Wednesday, the shares closed at 0.9 percent.
John Hodulik, UBS analyst, in one of his notes to clients, wrote on Wednesday, “We consider that due to the improvement in wireless industry (85% of EBITDA), the risk-return has shifted upside, which is a recovery to FCF growth as well as attractive valuation. He further said that “because of rational pricing environment (vis-a-vis rising investment) approach and reduced adverse market conditions… a large number of migrations, considering these factors we believe that current market momentum will keep on going.”
Hodulik reasserted his target of 55 USD price for Verizon shares, which accounts for 11% hike from that of Tuesday’s close. According to UBS analyst, the stock of the company trades 10.6 times of his earnings in the year 2018 that accounts for a 37% valuation discount to the S&P 500. He also noted that the multiple of this is “quite below” the 13% average discount of Verizon to the market over the past two decades.
He also mentioned, “Mobile carriers either hiked prices or made discouraging statements that they will become more reasonable while the investment is increasing and concentrate majorly on profitability.” “because of the tough competition in the market, companies have focused more on value (like providing free content) and little focus on price.”