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Why Verizon Communications, Inc. Is Ready to Rebound

By Brian D. Pacampara, CFA - Mar 19, 2014 at 12:22PM

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Does this analyst make a good case or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Bank of America upgraded telecom gorilla Verizon Communications ( VZ -1.00% ) from hold to buy on Monday, suggesting that the shares are attractively priced at the moment.

So what: Along with the upgrade, analyst David Barden reiterated his price target of $55, representing about 16% worth of upside to Friday's close. While momentum traders might be turned off by Verizon's price weakness in recent months, Barden thinks that all the uncertainty surrounding its deal with Vodafone Group ( VOD -0.41% ) offers patient investors an enticing entry point.

Now what: According to B of A, Verizon's risk/reward trade-off is particularly attractive right now. "VZ now trades at a 5 year low relative P/E multiple of 0.86x vs. its 1.15x average," noted Barden. "Even referring back to pre-crisis trading '04 to '08, VZ trades at its average of 0.88x. VOD deal-related selling of VZ shares is likely in our view and could drive short-term downside, but looking at pre-crisis valuation lows, we see $43.50 as the downside limit." When you couple that favorable scenario analysis with Verizon's juicy 4%-plus dividend yield, it's tough to disagree with BofA's bullishness. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$49.77 (-1.00%) $0.50
Vodafone Group Plc Stock Quote
Vodafone Group Plc
VOD
$14.62 (-0.41%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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