Verizon and AT&T Downgraded on Lower Expectations for Wireless

Bernstein Research analyst Craig Moffett Monday morning cut his ratings on both Verizon (VZ) and AT&T (T), asserting that shares of the two companies have “come too far, too fast.”

For Verizon, he goes to an Underweight Rating, from Market Perform, and cut his price target to $27, from $32. For AT&T, he goes to Market Perform, from Outperform, and reduced his target to $27, from $35.

He also trimmed estimates for both companies. For Verizon, he now sees 2009 EPS of $2.43, down from $2.75, and below his revised 2008 estimate of $2.54. For AT&T, he now expects 2009 EPS of $2.60, down from $3.02, and below his revised 2008 estimate of $2.79. The lower estimates, he writes, reflect lower expectations for wireless growth, negative enterprise growth and “significantly worse” wireline performance over the coming year. He says Street expectations for the year appear “significantly too high.”

The Street has been looking for $2.70 in 2009 for Verizon, and $2.89 for AT&T.

Moffett writes that the primary risk for the telcos is the wireless sector. “With wireless now approaching saturation, and with incremental subscribers hard-pressed by the recession, subscriber growth can be expected to slow sharply,” he writes. Moffett also expects enterprise growth to slow, “potentially sharply.” He also thinks the recession will accelerate the loss of residential wirelines.

“AT&T and Verizon may indeed be somewhat more recession-resistant than most businesses,” he writes. “But we believe they are nevertheless much more cyclically exposed than consensus estimates (and valuations) would suggest.”

VZ Monday was down $2.07, or 6%, to $32.57. AT&T was down $1.29, or 4.4%, to $28.13.

Comments

[PastTense:]

"Moffett writes that the primary risk for the telcos is the wireless sector"

No. the telcos are still gaining some customers in the wireless sector. Their primary risk is in the wireline sector--where they are losing massive numbers of customers.

Jan 06 12:34 AM