Verizon Communications (VZ) stock fell as MoffettNathanson and Barclays downgraded the telecom services provider, putting the skids on its nearly four-month rally. Verizon stock slipped 2.2% to close at 53.19 on the stock market today.
XWith Tuesday's loss, Verizon stock is near the break-even point for 2018. It's trading just above a buy point of 51.94.
Verizon stock has formed a cup-with-handle chart pattern starting Feb. 1. The Dow component stock hit a low of 46.38 on May 9 before rebounding.
Kannan Venkateshwar, a Barclays analyst, downgraded Verizon stock to equal weight. Venkateshwar says Verizon's capital spending could rise next year. That could happen if it builds a next-generation, 5G wireless network to challenge cable TV companies.
"Verizon is at present trading at a meaningful premium relative to its own history as well as relative to peers such as T-Mobile US (TMUS), especially on a growth-adjusted basis," he said in a report to clients. "Investors continue to be focused on Verizon's capex trajectory due to its fixed wireless expansion next year. Depending on how this proceeds, valuation context is likely to change into next year."
5G Capital Spending A Wild Card
"Overall, while we are optimistic about Verizon's near-term growth trajectory, we believe this is already reflected in valuations," Venkateshwar went on to say.
Verizon is testing 5G broadband services to residential homes in four cities: Sacramento, Calif., Los Angeles, Houston and Indianapolis. A broad 5G rollout in 2019 by Verizon could pressure the stocks of cable TV firms Comcast (CMCSA) and Charter Communications (CHTR).
Verizon has said it's not interested in acquiring a media company. AT&T (T) closed its purchase of Time Warner in mid-June. The Department of Justice has appealed a court ruling allowing the deal to close.
Verizon Stock Vs. AT&T
"Verizon shares have enjoyed a welcome renaissance, and, since the end of February, have solidly outperformed the broader market on both an absolute and beta-adjusted basis," MoffettNathanson analyst Craig Moffett said in his note to clients. "We still see further upside, but, unfortunately, not quite enough to warrant maintaining our buy recommendation."
Moffett maintained a sell rating on AT&T. He notes that as high-dividend paying stocks, shares in Verizon and AT&T have often been in sync, depending on the trend in interest rates.
"AT&T shares have badly underperformed the broader market," he wrote. "The relative underperformance vs. Verizon is the most dramatic we have ever seen. With the recent declines in AT&T shares, the relative valuation gap between AT&T and Verizon is no longer particularly compelling to us."
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The post Verizon Stock Four-Month Rally In Jeopardy As Two Downgrades Hit appeared first on Investor's Business Daily.
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