Goldman Adds Verizon To Conviction Buy (VZ)

Goldman Sachs is adding Verizon VZ to its Conviction Buy List, with a $42 price target on shares. In a note to clients, Goldman writes, "We are adding Buy-rated Verizon the Conviction List with 17% upside to our price target, and 4Q results are supportive of our view. Our 2011 revenue/ EBITDA estimates are now $111.3 bn and $35.6 bn (+3.3%/+2.6% vs. consensus). Our 2011/2012 EPS is now $2.35/$2.82 (from $2.40/$2.80), well above consensus. Verizon produced a record smartphone quarter yet still delivered record wireless profitability. In our view, this is indicative of (1) accelerating ARPU growth, providing substantial incremental capacity to subsidize handsets and still drive margin expansion, and (2) a large uptick in smartphone deployment next year will likely not be as dilutive as feared." Goldman goes on to say, "Verizon's appeal to investors should improve over the course of the year. We expect revenue growth to accelerate from 1.9% in 2010 to 6.6% in 2011 (0.8% to 4.9% on a proportionate basis), which should increasingly attract the large-cap growth investor. At the same time, the current 5.5% dividend yield, along with a path to dividend growth, still positions the company well for the more defensive investor. The company's 4%-8% revenue growth forecast for 2011 supports our recently upgraded forecast for 7% growth and is well above consensus growth of sub-3%. On the earnings trajectory, we are more optimistic than company expectations. Given the number of moving parts in the expense structure and a new CFO offering guidance for the first time, we believe the EPS outlook is conservative, builds in more-than-adequate iPhone dilution, and will lead to positive revisions over the course of the year." Shares of VZ are up 48 cents in pre-market trading to $36.27, a gain of 1.3%.