3 Reasons Comcast Should Acquire Verizon, And Why This Cost Dish A Downgrade

Earnings season may be stealing the headlines this week, but M&A chatter is still fervent on the Street.

Investors are keeping a close eye on the AT&T Inc. T—Time Warner Inc TWX merger and the fates of Sprint Corp S and T-Mobile US Inc TMUS.

But Citigroup’s Jason Bazinet believes Comcast Corporation CMCSA and Verizon Communications Inc. VZ will be the next stars in the industry, and argues that Comcast should make a move to acquire Verizon.

Merge Two, Expand Once

Bazinet believes that overlap between the company’s targeted areas for growth mean a merger would make sense and save costs.

Comcast would immediately extend its reach beyond the home through wireless service and Verizon would gain from Comcast’s entertainment offerings.

Together, the companies would also only need to make one investment into deeper fiber offerings, rather than do it on their own.

The ‘Stars Are Aligning’

The current financial and regulatory landscape also means the timing could be right for Comcast to acquire Verizon, which is reportedly open to merger talks with a handful of companies.

Bazinet noted Comcast’s long and largely fruitless history of acquisition attempts including Walt Disney Co DIS in 2004, NBCUniversal in 2009 and Time Warner in 2014.

Verizon’s market cap is down nearly 17 percent this year, and for the first time Comcast’s value exceeds Verizon’s.

The Trump administration, namely the FCC and Department of Justice, may also be more open to a deal than the Obama administration was.

Big Synergies

Bazinet estimates a deal between the companies would generate $2.1 billion of annual synergies.

Dispositions would also be fairly small, mostly where Comcast and Verizon’s cable services overlap. Disposed assets could earn the company as much as $32 billion at 9.8x EV/EBITDA.

If They Grow Fatter, Dish Is The Biggest Loser

Bazinet sees Verizon as the company most likely to try acquiring DISH Network Corp DISH, and noted that most of Wall Street agrees.

If Verizon were to be acquired by Comcast, Dish would be left without a suitor and likely suffer significant pressure from investors.

Because of his belief in a Comcast—Verizon deal, Bazinet views the risk to Dish too great, downgrading its shares to from Buy all the way down to Sell.

The analyst’s new price target, down from $94 to $53, represents 16 percent downside from Wednesday’s opening price.

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