Goldman Sachs downgrades Verizon on valuation following big subscriber loss

Published Mon, Apr 25 20228:50 AM EDT

Verizon is positioned to remain a wireless leader in the 5G cycle, but its biggest opportunity is also its biggest challenge, according to Goldman Sachs. On Monday the firm lowered its rating on Verizon to neutral from buy, and cut its 12-month price target on it to $55 from $61. "Our downgrade primarily reflects our view that VZ offers less total return potential vs. its large cap peers in telecom and cable, most notably AT & T, which trades at a discount to VZ on earnings and dividend yield, despite our outlook for similar durability in the carriers' earnings and payouts," Goldman analyst Brett Feldman said in a note Monday. The Wall Street firm said although the telecom giant's recent traction with its 5G fixed wireless access shows evidence that investments in that service have expanded the company's addressable market, it also anticipates a slowdown in revenue growth. "We also believe that Verizon will continue to show moderate growth in its postpaid average revenue per postpaid user over the medium-term as its subscriber base upgrades into premium-tiers of its 5G unlimited plans," Feldman wrote. "If growth compresses more materially owing to the lack of stimulus, macro factors (e.g., inflation, economic headwinds) or other impacts, Verizon may not achieve our subscriber growth forecasts and potentially our outlook for modest growth in revenues and adjusted EPS." The downgrade comes after Verizon on Friday reported a loss of 36,000 monthly phone subscribers in the first quarter, an indicator that the company is benefiting from its 5G services and new broadband networks. Feldman also cited inflationary cost pressures, supply chain disruptions, failure to achieve traction with growth initiatives, slower pace of delivering targets and higher borrowing costs. Since joining Goldman's buy list in 2018, Verizon's shares have added 7% versus the S & P 500's 55%, and total return was 27% compared with the benchmark index's 60%. On Monday, Verizon shares were falling more than 1% in premarket trading, adding further to Friday's slide. — CNBC's Michael Bloom contributed reporting.

A Verizon store in New York City.

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Verizon is positioned to remain a wireless leader in the 5G cycle, but its biggest opportunity is also its biggest challenge, according to Goldman Sachs.