What happened

It's been a tough year for holders of Verizon Communications (VZ -0.28%), with fears about churn in the mobile phone market and the company's massive capital expenditures requirements in the years to come weighing on the stock. But at least one analyst believes those fears are overstated and that Verizon is a long-term winner.

Shares of Verizon traded up as much as 2.5% on Thursday following the upgrade, on a day when the broader markets were down by a similar amount.

So what

Verizon is a major player in an increasingly commoditized business where little seems to differentiate various competitors. The company, along with rivals including AT&T, has seen an uptick in churn -- customers who come and go looking to capitalize on whatever the best deal is at any given moment. Verizon also has more than $175 billion in total debt, as well as huge capex requirements in the coming years as it builds out its 5G offering.

But the company has been dealing with these issues for years, and according to Simon Flannery at Morgan Stanley, is much better positioned to weather this period than investors appreciate. In a research note, Flannery switched his preference to Verizon from AT&T, upgrading Verizon to overweight from equal weight and doing the reverse to AT&T.

Flannery also upped his price target on Verizon to $44, about 20% above the current trading price. The analyst wrote that the company trades at what is a "historically attractive valuation on an absolute and relative basis." Flannery sees operating performance improving in 2023 and Verizon's free cash flow ramping 45% by 2024.

Now what

That comment on cash flow is important because it provides some reassurance on one of the biggest concerns of current shareholders. With the stock down as much as 30% year to date, Verizon is currently paying a dividend yield of nearly 7%. Often such high rates of return are greeted with questions about sustainability, and with the company's significant debt balance, there is reason to worry about whether a dividend cut is inevitable.

Verizon isn't likely to rebound overnight, but if Flannery is correct and operating performance improves in the quarters to come, expect investors to slowly warm to the shares. For those interested in a turnaround play with a strong dividend, Verizon is worth a look.