Argus Reiterates Buy Rating For Verizon On 'Slackening' Competition

Verizon Communications Inc. VZ and its impressive 4.1 percent dividend has been one of the hottest large cap stocks in the market in 2016. Despite the stock’s 19.1 percent year-to-date gain, Argus analyst Joseph Bonner still sees significant upside for the stock following the acquisition of Yahoo! Inc. YHOO.

“We believe the company’s long-term strategy remains intact as competition appears to be slackening – at least temporarily – in the wireless industry,” Bonner explains.

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According to Bonner, Verizon’s recently-reported quarterly adjusted organic revenue decline of 3.5 percent is due to fewer-than-expected wireless phone activations on device installment plans, a decline in customer upgrades, and the migration of subscribers to unsubsidized rate plans.

Argus was pleased by the $4.8 billion price Verizon paid for Yahoo, especially given the $6-8 billion rumors that had circulated at the beginning of the bidding process. Bonner estimates Verizon paid roughly 6.2x Yahoo’s 2016 EBITDA.

“We think that Verizon got a fairly good deal on its proposed purchase of Yahoo!, though it is uncertain whether the company’s mobile video strategy will gain traction with customers,” he concludes.

Following the deal, Argus reiterated its Buy rating for Verizon and maintains its $60 price target. Bonner notes Verizon currently trades at a projected 2016 PE of only 14.1, well short of its peers’ average of 17.1.

Disclosure: the author holds no position in the stocks mentioned.