MoffettNathanson downgrades Verizon to underperform as wireless landscape gets tougher

Published Thu, Aug 18 20227:35 AM EDTUpdated Thu, Aug 18 20228:47 AM EDT

Increased competition among wireless providers is set to pressure Verizon shares, according to MoffettNathanson The firm slashed its rating on the company to underperform and lowered its price target to $41 from $55. The new target implies downside of more than 9% from where shares closed Wednesday. Part of the reason for the downgrade is how competitor AT & T's strategy of aggressive promotions has dragged Verizon's business. "Verizon has done its best to avoid being dragged into AT & T's promotional abyss, but their efforts have been met with only limited success," Craig Moffett wrote in a Thursday note. "They have seesawed between periods of promotionality and financial restraint, optimizing neither." Verizon shares are down 12% year to date, lagging the Dow Jones Industrial Average's 6.5% slide in that time. T-Mobile Recently, Verizon has sharply pulled back promotions in a flip from their second quarter approach and have introduced a slew of lower-priced plans instead. In addition, Verizon's customer base seems especially vulnerable as T-Mobile widened its competitive advantage in 5G, coupled with their pricing which is still lowest in the industry, according to Moffett. Telecommunications stocks generally outperformed in the first quarter, but in the second, Verizon and AT & T gave up gains on weak earnings reports. Moffett sees Verizon and AT & T falling further from where they're currently trading. The firm also cut its AT & T price target to $17 from $19 while maintaining its market perform rating. "Verizon finds itself in a particularly difficult position, with challenging market expectations and a (modestly) higher valuation than AT & T," said Moffett. "We are meaningfully below consensus for Verizon for subscribers, revenues, EBITDA, and EPS for the next few years. And we are similarly below consensus for AT & T." On the flip side, the firm raised its price target for T-Mobile to $174 from $165 reflecting expectations of higher margins and momentum in reducing churn and acquiring new customers. The firm has an outperform rating on the stock. —CNBC's Michael Bloom contributed reporting.