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Why Verizon Communications, Inc. Is Ready to Rebound

By Brian Pacampara – 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 1.07%) 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 0.92%) 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. 

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Vodafone. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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