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Pro Analysis

Verizon downgraded on concern the end of phone subsidies will lead to sales decline

Verizon
Scott Mlyn | CNBC

Wells Fargo Securities lowered its rating on Verizon Communications to market perform from outperform, saying the company's sales results will come in below expectations in the coming year.

Verizon shares have rallied 11 percent versus the S&P 500's 6 percent return since the Nov. 8 election through Friday.

"We do not think VZ's outperformance since the presidential election ... is sustainable given growth headwinds in 2017. While we still favor VZ's network superiority and FCF generation, we struggle with near-term catalysts," analyst Jennifer Fritzsche wrote in a note to clients Monday. "Risks include service revenue pressures from installment plan migrations, competition from smaller wireless peers and lack of scale in emerging businesses."

Verizon confirmed in early January that it will not offer subsidized two-year service contracts for new and existing customers going forward. Instead subscribers will be required to use equipment installment plans (EIP) or pay for the full value of a new smartphone upfront.