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Verizon Communications (VZ), the nation's largest wireless phone service provider, pleased analysts yesterday with better-than-expected earnings.
The news prompted brokerage firm Morgan Keegan to upgrade its rating of the stock to "outperform." Banc of America also reiterated its "buy" rating and raised its price target for Verizon to $42.
Analysts at Morgan Keegan and Banc of America agree that Verizon's dominant wireless business differentiates the company from its competitors. Verizon Wireless added a record number of new subscribers in the third quarter -- nearly 1.7 million. Analysts from both firms say that this growth will continue as a result of Cingular's acquisition of AT&T Wireless. According to Banc of America, "market confusion ... and service challenges" will likely create "new opportunities for companies like Verizon to poach customers" from the newly merged providers.
Although Morgan Keegan warns that Verizon Wireless's growth can't continue indefinitely, analysts cannot pinpoint an "industry catalyst that is going to stop Verizon Wireless's recent dominance."
Banc of America showed its confidence in Verizon's wireless business by raising its 2005 earnings estimate for the company by $0.12.
Verizon's wireline business is not shining as brightly, though, as consumers increasingly find alternatives to traditional wired service. But it reported slight revenue growth over the second quarter. Morgan Keegan notes that the company has been steadily attracting business customers.
Overall, Morgan Keegan says, "Verizon is clearly the most attractive stock" among the regional Bell operating companies. Verizon trades at 15 times the $2.66 per share that analysts, on average, expect the company to earn in 2005. Verizon also pays an annual dividend of $1.54 per share.
--Lisa Dixon
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