What happened
Shares of Verizon (VZ -4.67%) declined by 3.1% on Monday after analysts at Goldman Sachs downgraded the popular telecom stock.
So what
Goldman analyst Brett Feldman cut his rating on Verizon from buy to neutral and slashed his share-price forecast from $61 to $55. The downgrade came after Verizon said on Friday it lost 36,000 postpaid phone connections in the first quarter. That decline, combined with AT&T's (T -1.21%) 691,000 net postpaid phone additions during the quarter, sparked concerns among investors that Verizon was ceding ground to its rival in this key customer segment.
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With AT&T's operational and financial metrics improving and Verizon suffering subscriber losses, Feldman argued that the market will begin to value the two telecom stocks more equally. AT&T's shares currently trade for about 8.2 times trailing-12-month earnings, according to Yahoo Finance, while Verizon trades for 9.8 times earnings. If Feldman is correct, Verizon's stock could underperform that of its rival as their valuations converge.
Moreover, while Feldman expects Verizon to defend its wireless market share as it rolls out its 5G network, he believes the company will fail to deliver on its long-term profit projections. Thus, he named AT&T's stock as the better buy.
Now what
AT&T recently shed its WarnerMedia assets as part of its strategy to refocus its business on its core wireless and broadband operations. The now-streamlined telecom giant is poised to be a more formidable competitor to Verizon in the 5G arena, with sizable financial resources to deploy toward improving its network. That could make it challenging for Verizon to achieve its subscriber and earnings-growth goals.
