Telecom Roundup: Nomura Initiates Coverage on Verizon Communications Inc. (VZ), Sprint Corp (S), T-Mobile US Inc. (TMUS)

On Friday, analyst Jeff Kvaal from Nomura Equity Research initiated covered on top US telecom companies Verizon Communications Inc. (NYSE:VZ), Sprint Corp (NYSE:S), T-Mobile US Inc. (NYSE:TMUS). Kvaal has a 53% success rate recommending stocks with a +12.6% average return per rating when measured over a one-year horizon and no benchmark.

Kvaal assigned a Neutral rating to Verizon’s stock with a price target of $47. He attributes the rating to slow growth in the near future, explaining, “Verizon’s $130bn deal for the 45% of Verizon Wireless held by Vodafone in 2014 lifted mobile to 70% of sales and 80% of EBITDA. The deal coincided with peaking U.S. penetration, heightened competition, and a tightened focus on the highest-quality phone customers. We therefore expect Verizon’s 8% mobile growth in 2014 to slow to 2-3% in 2016, although partially on accounting changes.”

As per TipRanks, out of 9 analysts who have recently rated Verizon, 5 have given it a Buy rating, 3 have rated it as Hold, and 1 has given a Sell rating. The average consensus price target for the stock is $51.38, an upside of nearly 15% over current levels.

Kvall VZ

For Sprint, Kvaal issued a Neutral rating with a price target of $4 due to cost concerns. He explained, “Sprint intends to spend $15bn in capex in the next three years to extend its network improvements. This represents ~$80/subscriber per year, below the historical ~$100/subscriber level for AT&T and Verizon. While SoftBank’s history in 2.5GHz and Sprint’s 120MHz allocation will offer some efficiencies, we do not believe they are sufficient to close the gap.”

According to TipRanks, of the 12 analysts who have recently rated Sprint’s stock, a majority (7) share the views of Kvaal and have preferred to remain on the sidelines. Of the remaining analysts, 2 have rated the stock as a Buy and 3 have given it a Sell rating. The average consensus price target for Sprint’s stock is $4.11, a downside of 4.20% over current levels.

Kvall Sprint

As for TMobile, Kvaal issued a Buy rating with a price target of $48. Unlike the other carriers, the analyst is bullish on TMobile due to its pricing lead and low levels of competition. Kvaal explains, “We believe TMUS’s pricing lead, low mix of iPhones, and the modest competitive response from its rivals should sustain net add strength and steady ARPUs. Network investment must remain high.” He is also optimistic on the company’s finances, explaining, “We believe T-Mobile must continue to expand its capex budget; as such, we model its capex / sales ratio moderating only slightly in coming years. We expect capex to rise above $5bn per year vs. consensus of approximately $4.9bn.”

Based on TipRanks’ statistics, out of 14 analysts who have recently rated T-Mobile’s stock, 13 have rated it as Buy and 1 has rated it as a Hold; none of the analysts have recommended to sell the stock.

Kvall TMUS

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