Verizon Shares Fall As Competition Grows
Verizon (NYSE: VZ) shares significantly dropped in trading on Tuesday after the company revealed strong customer growth and the roll out of 4G devices, but at the cost of a “highly competitive and promotion-filled” fourth quarter. As a result, the high number of consumers taking advantage of its deals may add pressure to its wireless business’s EPS and EBIDTA in the near-term.
The company also revealed that more of its current customers have cancelled their services in favor of other competitors this quarter than in the quarter prior or the same quarter last year due to heavy promotions from rivals.
Due to its strong reputation and network, Verizon has been able charge consumers a premium for its wireless service for a long time. However, deals and discounts from its competitors are starting to have a negative impact on the company.
On December 9th, Citigroup analyst Michael Rollins reiterated a Neutral rating on Verizon and lowered his 2014 and 2015 EPS estimates following the company’s announcement. He noted, “the national U.S. wireless carriers now face unfavorable conditions in 2015 relating to slower industry revenue growth, higher capacity costs, and a tougher regulatory backdrop, while they incubate different strategies to create a path to long-term revenue growth.”
Rollins currently has a 63% success rate recommending stocks with a +12.5% average return per recommendation. He has rated Verizon 6 times with 60% success.
Robert W. Baird analyst William Power also cut his rating for Verizon from Outperform to Neutral on December 9th. Power fears that Verizon is taking more of a hit from competitors than in the past.
Power currently has a 62% success rate recommending stocks with a +9.6% average return per recommendation. He has rated Verizon 4 times with a +8.9% average return per recommendation.
Will Verizon overcome this hurdle and come out ahead, or is the competition too much to handle?
On average, the top analyst consensus for Verizon is Hold.