Verizon Doesn’t Have a Strong Catalyst to Drive Near-Term Re-Rating – Morgan Stanley
2022.08.24 21:14
Verizon (VZ) Doesn’t Have a Strong Catalyst to Drive Near-Term Re-Rating – Morgan Stanley
By Sam Boughedda
In a note to investors on Wednesday, a Morgan Stanley analyst questioned whether Verizon Communications (NYSE:VZ) shares are oversold ahead of a dividend boost.
The analyst, who has an Equal Weight rating and $58 price target on the stock, said Verizon’s stock has fallen 15% this year and is now trading at a stock price not seen since 2017, while the dividend yield “now stands at 5.8%, good for #10 in the S&P 500.”
“As this week’s chart of the week shows, this is by far the highest yield the stock has traded at in the past decade, and compares to a 10-year average yield of 4.5%. Furthermore, we expect the company to announce their 16th annual dividend increase around September 1 with a c. 2% boost. This dividend is well covered, representing a c. 50% payout on earnings, and a 58% payout on 2022 FCF,” wrote the analyst.
The analyst pointed out that Verizon’s weakness reflects “some disappointing operational and financial results in recent quarters.”
“The stock currently trades at a P/E of just 8.5x on estimated 2022 earnings. At current levels the stock is trading close to our $42 bear case. While we think the stock is inexpensive we remain on the sidelines as we don’t see a strong catalyst to drive a re-rating in the near term,” the analyst added.
Verizon shares are trading relatively flat at the time of writing on Wednesday, up just 0.16%.
