Thursday, August 9, 2012

VZ Sell Thesis

Verizon has outperformed and came just shy of our $46 price target. We decided to cut the position in half for the following reasons:

-Verizon has outperformed since late April/May, largely due to a defensive shift in investor sentiment. The low interest rate environment has pushed money into “safe-haven stocks” like Verizon, which now has a 4.5% yield (this was much higher before the run up). 
-We still believe in the company’s thesis and reiterate its $46 PT, but would like to take some profits at this time because the upside is limited & as a precaution in case investors shift more into risky assets and out of high yield stocks in the telecom industry.
-In addition to a sector rotation thesis, there are some fundamental negatives that could cause the stock to pause: 
   -Customers viewing family share pricing as expensive could limit sales. Forcing them to get rid of unlimited data unless you buy phones outright creates customer resentment as well. Prepaid carriers are starting to make a push, with Virgin Mobile leading the way with the iPhone and other high-end smartphones 
   -Deceleration in FiOS volumes in video & data, absence of a new labor agreement could be a negative, & weakness in wholesales.

-Ryan Ranado & Joe Esposito

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