Barclays: Verizon A Buy Despite DOJ Probe

Despite the threat of a Justice Department investigation that crippled shares Friday, Verizon Communications Inc. VZ caught a fresh Buy rating Monday from an analyst who’s been on the sidelines since 2015.

The Analyst 

Barclays analyst Amir Rozwadowski upgraded the stock from Equal Weight to Overweight and maintained a $56 price target.

The Thesis

By Barclays’ assessment, Verizon’s historically low valuation does not reflect the firm’s multiple opportunities to improve fundamentals, including service revenue recovery.

“Moreover, its cash generation capabilities, dividend coverage and ability to de-lever are all on sustainably better footing,” Rozwadowski said in a note. (See the analyst's track record here.) 

“While we expect Verizon’s capital intensity to increase beginning next year, the company has made a credible case that a multi-use architecture improves return characteristics for every dollar invested.”

Verizon’s long-term performance has been stunted by uncertainty around competition and margin trajectory, acquisition and investment strategy and the firm’s capacity to grow service revenue.

“We expect the latter to improve in the second half of 2018 [and] consider the company relatively better-positioned in dealing with cable competition, on pace to at least hold margins via cost reductions and don’t anticipate any transformative deals on the horizon,” Rozwadowski said. 

Price Action

Verizon shares were trading up 1.17 percent at the time of publication Monday. 

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Photo courtesy of Verizon.