AT&T/T-Mobile Deal Won't Hurt Verizon

Includes: T, VZ
by: Alacra Pulse Check Blog

By Sheena Lee

Analysts are not worried for Verizon (NYSE:VZ) after the announcement of a possible AT&T (NYSE:T)-T-Mobile merger. As the industry’s top player, Verizon has one of the healthiest balance sheets in the telecoms sector and could even benefit from the deal, said analysts.

Still, on average, they do not see any upside in Verizon’s stock price in the next 12 months.

The median 12-month price target based on analysts tracked by Alacra Pulse has not changed from the $35 median in our February prognosis, which is below today’s opening price of $37.24.

"I don’t think they need to do anything right now except stay focused on their core message and superior experience," said Charles S. Golvin, an analyst with Forrester Research. Merrill Lynch’s David Barden, who has a $36 price target and Hold rating, said tha strategically, "the net of a stronger AT&T and a disappearing T-Mobile is positive (for Verizon)."

James D. Breen Jr. of William Blair said Verizon could even benefit from the deal, picking up disaffected T-Mobile customers as a result of the merger. Richard Dineen, an analyst with HSBC Securities in New York, agreed. "I don’t think (Verizon has) that much to fear," he said. "They have set the pace."

Verizon Wireless has plenty of spectrum, the very commodity that AT&T is seeking in its T Mobile deal, and in fact has dominated several auctions of wireless bandwidth, said Morningstar analysts.

Citigroup’s Michael Rollins reiterated a $39 target and remains a buyer: "We believe Verizon would be a net beneficiary in a consolidating industry structure and Verizon could be a possible buyer of any divested spectrum or operations that could result from AT&T’s pending acquisition of T-Mobile USA, " he wrote.

Verizon could also be put in a position where they will have more control over pricing. "If there’s a more stable pricing environment, certainly that’s viewed as a positive for Verizon," said Nomura analyst Mike McCormack, noting that AT&T likely won’t adopt additional low-cost plans similar to those T-Mobile currently offers. McCormak has a $34 price target and Hold rating on Verizon.

Analysts, such as Oppenheimer’s Ittai Kidron, have also suggested that Verizon could look to increase its own scale by considering buying Sprint-Nextel (NYSE:S). However, that idea was shot down by Verizon CEO Daniel Mead, who told Reuters: "We’re not interested in Sprint. We don’t need them."

Jason Armstrong at Goldman Sachs, who reiterated a $42 target, wrote that "Verizon indicated in investor meetings it is amenable to the deal, provided there are no FCC rules imposed for the broader industry (price caps, for example)."

One analyst who has raised his target is Craig Moffett of Sanford Bernstein & Co., who retains an Underperform rating on Verizon. He upped his target price on the shares of the company earlier this month to $30 from $25, bringing him closer to other analysts.