Auriga USA analyst Chandan Sarkar Tuesday morning cut his rating on Verizon (VZ) to Hold from Buy, chopping his price target to $40, from $34. Sarkar cut his Q3 EPS estimate to 60 cents from 63 cents; for Q4 he similarly goes to 60 cents, from 63 cents. For 2010 he goes to $2.58, from $2.67.
“Although we think it is possible and even likely that the recession that has gripped the U.S. for the past several quarters has likely passed and the economy is in the early stages of a rebound, the continuing climb in the unemployment rate appears to be further pressuring Verizon’s enterprise-related businesses,” Sarkar writes in a research note.
Sarkar also says that the company is getting push back from regulators on the proposed sale of 4.8 million rural access likes to Frontier (FTR). He says the troubled results of the company’s previous spinoffs - Hawaiian Telecom, which went bankrupt in 2008, and Fairpoint Communications (FRP), “which is currently struggling to avoid bankruptcy” - have weighed on the regulators. “While management has issued no official comment, we think possible scenarios to help gain approval could include lowering the amount of debt, executing the deal in stages or simply reducing the number of lines sold,” he writes.
Sarkar also points out that recent competitor moves to all-you-can-eat international pricing plans “signal that profits from international long distance will likely come under margin pressure.”
VZ Tuesday is down 49 cents, or 1.6%, to $30.55.