Limited Upside for Verizon Despite Expected iPhone Arrival

| About: Verizon Communications (VZ)

Verizon Communications (NYSE:VZ) is expected to start selling Apple’s (NASDAQ:AAPL) iPhone next year, and some analysts have raised their price targets on the telecoms giant after strong quarterly results. However, most don’t see a great deal of upside in the stock price over the next 12-months.

The median price based on the the thirteen most recent targets tracked by Alacra Pulse is $34, up from $32 a month ago and slightly higher than Thursday’s closing price of $32.63. The mean target is $32.62. Of these 13 analysts, 4 have a positive rating, 8 are neutral and one is negative.

Current 12-month price targets of selected sell-side and independent analysts.

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Deutsche Bank analyst Brett Feldman raised his price target on Verizon to $35 from $32 after the firm released market-beating third quarter earnings. Feldman said that the carrier reported solid results in terms of revenue, EPS and wireless margins. “Other highlights include a beat in post paid (those who pay monthly bills and sign service contracts) net adds, improved FiOS subscribers (video and data) and continued growth in consumer.”

Goldman Sachs analyst Jason Armstrong increased Verizon’s earnings per share estimates through 2012, and reiterated a Neutral rating and $34 price target on the stock. Credit Suisse analyst Jonathan Chaplin reiterated a neutral rating and $35 price target.

Morgan Stanley analysts Simon Flannery and Daniel Gaviria said smartphones based on Google’s (NASDAQ:GOOG) Android operating system have helped the company significantly. ”The DROID franchise was also responsible, in our view, from limiting the impact of the iPhone 4 and the cheaper iPhone 3GS intros. Verizon appears to have greater leverage in pricing a potential iPhone at premium – key to 2011 earnings.” The bank maintained its Equal-Weight rating on the stock.

Barclays analyst James Ratcliffe boosted Verizon’s 2010 earnings per share estimates earlier this month, but lowered its 2011 earnings per share estimate to $2.30. The analysts reiterated their Equal Weight rating and $34 price target. Barclays analysts said:

Verizon Wireless continues to be the best performing wireless business in the US, with margins in the 60% range.

FBR Capital analyst David Dixon reiterated a Market Perform rating and $30 price target, but he expressed concerns over costs at Verizon:

Proportionate revenue growth continues to trail AT&T’s growth…Verizon Wireless is significantly increasing investment in the existing 3G network, as well as replacing voice carriers with data carriers to handle increased demand for wireless data, which could affect churn due to reduced voice quality.

Compared to other analysts tracked by Alacra, Bernstein Research analyst Craig Moffett is the most bearish with a $25 price target on Verizon. He reduced his rating to Underperform from Marketperform last month, and said that the company’s shares now trade at 125% of the market multiple after a solid Q3 rally. He notes that dividend yield, rather than intrinsic yield, seems to be driving the stock.

Disclosure: No positions