Verizon (NYSE: VZ) and other telecoms began to sell off last week when the market came to the realization earnings in the sector are not expected to be strong this quarter. The consensus estimate for Verizon is for revenue to decline slightly on a sequential basis and drive earnings of $1.36 per share. Ultimately, the earnings outlook is good for Verizon but, with the market looking for growth, interest is turning to other industries and sectors. What this means for us, as high yield and dividend growth investors is another buying opportunity into a stock we view as a fundamentally good buy for any high yield or dividend growth portfolio.
Barclays Trims Target, Verizon Hits 20 Month Low
Barclays analyst Kannan Venkateshwar helped push shares to their new low by lowering his price target for both Verizon and AT&T (NYSE: T). In his view, there is no visible catalyst for the stock or the industry but he maintained a bullish rating at Equal-Weight for both. He lowered the price target for Verizon by a dollar, however, from $56 to $55 which implies nearly 6% of upside with shares trading near $52. The price target decrease was driven by a tweak to his model that takes into account a recent acquisition. Venkateshwar sees Verizon trading sideways until the new revenue streams kick in and/or some other catalyst emerges. This is the first negative analyst commentary since Moffett Nathanson lowered their rating to neutral way back in May.
The Marketbeat.com analyst consensus rating for Verizon is a Strong Hold. There are 15 current ratings with 5 bullish ratings and only 1 bearish rating. The caveat is that the consensus price target of $60 has been edging lower and is down 220 basis points in the last 90 days. The mitigating factor, however, is that the decline in the consensus is due to newly initiated price targets rather than a decrease of current price targets other than the price target set by Barclays. Also of note, the $60 consensus implies more than 15% of upside is available in this stock while the high price target of $68 implies more than 30% of upside. The high price target was set by Cowen in July.
Verizon Is A High Yield Dividend Grower
Verizon is a high-yield dividend grower with a positive outlook for dividend increases. The stock is yielding close to 5% with shares trading near $52 and the yield could go over 5%, at least in the near term. The company’s payout ratio is a low 48% and there is a history of past dividend increases to boot. The company has been increasing annually for the last eight years and just increased by 2%so it will be a year until the next increase.
The balance sheet is a little tight and carries quite a bit of debt but there is no reason to expect a dividend cut or suspension. The near-term outlook for revenue and earnings growth is a little cloudy but the long-term outlook is positive. The dividend increases may not be large but the outlook supports growth. The company updates guidance at the end of last quarter based on momentum within the industry and we think they could increase their guidance again this quarter. Verizon also tends to beat the consensus estimate by a fair margin.
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