On Monday, 24th November, 2014, when the new week commenced, it heralded bad news for Verizon Communications Inc (NYSE:VZ) because the stock had been downgraded to ‘neutral’ status by Citigroup. Previously it had been rated as ‘overweight’ and in a statement, Michael Rollins, an analyst with Citigroup justified the degradation as follows –
“We are reducing our rating on Verizon to neutral as we now expect below-consensus EPS for 2015 based on higher costs of (network) capacity (spectrum and cell densification) and slower revenue growth from greater rate plan competition. Also, multiple expansion may be more challenging within the current industry environment.”
Having lowered the price point by two notches from $53 to $51, Rollins went on to clarify that it is not just Verizon Communications Inc (NYSE:VZ) but the entire wireless industry that may be going through a risky phase. As far as Verizon is concerned, it is still placed at a better position as compared to its competitors courtesy of Apple’s iPhone 6. But, according to Rollins, this does not diminish the risk factor at all since the revenue outlook for the sector itself could be on shaky grounds in 2015.
Following the Citigroup downgrade, Verizon Communication Inc (NYSE:VZ)’s stock fell by 1.5% by the end of trading session, thus prompting traders to describe its position as being in a ‘no man’s land’ in Fast Money on CNBC. Currently trading at $49.50, it might appear as being perfect for making an entry but will it remain so and accrue returns in future?
While Jon Najarain felt that dividend was attractive and rendered the stock as a ‘buy’, Josh Brown dismissed it completely. In his opinion, even though the stock did show some growth, it was decelerating in nature and one of the reasons was the rising cost scenario for wireless niche as a whole. With competition reaching cut-throat levels and structural and customer acquisition costs rising more than ever, it remains to be seen where Verizon Communications Inc (NYSE:VZ) is headed in the long run.
This article has been written by Vinita Basu.