Verizon gets rating cut at Barclays on limited upside to valuation

Barclays downgraded Verizon Communications (NYSE:VZ) to Equal Weight from Overweight noting that valuation is more fairly aligned with trend improvements.

The analysts said that Verizon is on a much better operational trajectory than has been the case over the last couple of years, however, upside to numbers and valuation may be more limited from present levels.

The analysts added that AT&T (T) on the other hand may have slightly better narrative support this year on a relative basis and they have raised their price target to $20.

The analysts noted that they upgraded Verizon following the company's third quarter results in October 2023 on early signs of improvement in growth second derivatives across consumer net adds, average revenue per user, or ARPU, service revenue, EBITDA and Free cash flow, or FCF.

This is now broadly reflected in consensus estimates, especially post guidance last week. In addition, Verizon stock was trading cheap relative to its own history and relative to peers. Since then, the equity has outperformed SPX and its peers meaningfully and valuation is back within its historical range, following positive estimate revisions and a much better execution narrative, the analysts noted.

The analysts continue to believe that Verizon (VZ) is operationally in a different place now than has been the case for the last couple of years, but they have downgrade the stock to Equal Weight for the following reasons — revenue growth needs more balance; FCF/EBITDA trends remain anemic compared to sector; Tracfone business taking longer than expected to integrate; Valuation back to historical range; positioning similar to early '23 in some ways but telco is likely to continue outperforming cable; and AT&T's narrative may have better relative support.

Verizon Communications (VZ) has a Hold rating at Seeking Alpha's Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors' average rating is more positive with a Buy and so is the average Wall Street analysts' rating, Buy.