The Telecom Sector: JPMorgan Downgrades Verizon, Upgrades AT&T

AT&T Inc. T was upgraded by two Street analysts Monday, while Verizon Communications Inc. VZ caught a downgrade from JPMorgan that came with a projection of flat EPS growth.

The Analyst

JPMorgan analyst Philip Cusick downgraded Verizon from Overweight to Neutral and reiterated a $62 price target.
Cusick upgraded AT&T from Neutral to Overweight and maintained a $38 price target.
Cowen analyst Colby Synesael upgraded AT&T from Market Perform to Outperform and increased the price target from $34 to $36.

Verizon

The Verizon thesis has become less compelling following the addition of a new management team and a run-up in shares, Cusick said in the Monday downgrade note. JPMorgan anticipates effectively flat earnings per share growth over the next few years.

The new management team will create both risk and opportunity, Cusick said. CEO Hans Vestburg has developed a refined organizational structure, he said.

“Vestburg and CSO Rima Qureshi joined from Ericsson only in 2017, new consumer head Ronan Dunne joined Verizon in 2016, and media/Oath head Guru Gowrappan joined in 2018. Business head Tami Erwin has been with Verizon for years — the longest tenured C-level executive as CFO Matt Ellis joined in only 2016.”

AT&T

Following management and company analyst meetings, Cusik said he has a better understanding of AT&T’s plans for organic growth. The company has demonstrated comfort in dedicating time to improved wireless performance, a media shift and better pricing going into 2019, he said in the upgrade note.

Cowen's Synesael said in an upgrade note that, with the acquisitions of DirecTV, Time Warner and AppNexus, AT&T has the means to create a next-generation advertising platform across its 370-million-customer base.

“The concept in our view is logical and we also agree the assets that AT&T has assembled would suggest they can be successful. That said, all of this remains to be see;, however, if proven out, it could drive significant upside in outer years," the analyst said.