Verizon: A Stream of Streaming Deals, and More To Like, Says Instinet

Shares of Verizon Communications (VZ) are up 82 cents, or 1.6%, at $52.66, after Jeffrey Kvaal of Instinet this morning raised his rating on the shares to Buy from Neutral, and raised his price target to $61 from $47, writing that yesterday's deal with the National Football League is just one of many streaming video deals he expects this year, along with tax reform and a relatively stable competitive landscape.

Yesterday's announcement Verizon will show various NFL games, including the Super Bowl, to mobile device users across not just its own but others' networks, is just a "tease," believes Kvaal.

"We expect more to come."

And "unlike AT&T (T)," Verizon, he thinks, "has the opportunity to be different : it need not bundle to reduce churn or be overly mindful of its existing video base as its pay-TV base is minimal relative to rivals.

Noting that "telecom has materially underperformed in 2017," Kvaal observes that Verizon stock "has underperformed the index by twenty-two percentage points year to date."

He likes the prospects for a relatively benign competitive situation that are shaping up.

Although the breakdown of T-Mobile US (TMUS) and Sprint (S) talks for a merger dashed hopes for "inorganic market repair," nevertheless, repair is "underway organically," he argues.

"4Q phone promos have been light," observes Kvaal. "Sprint signaled it will not reprice its base, and T-Mobile's buyback shifts its focus from net add to FCF growth."

Most investors are looking to tax reform already, but he thinks they underestimate the improvements happening with pricing in the industry.

"After three years of stable to declining EPS - Verizon's self-described "plateau" - we think the company is finally poised to resume EPS growth."

Kvaal also spends some time talking about the migration of Verizon's customers to higher speeds. One element is " 5G " wireless, which will start with fixed wireless in 2018. Kvaal thinks mobile is more important, and he thinks the company is "on track to be in market with ~1Gbps 5G mobile data cards by year-end 2018," while "Smartphones should follow in 1H19."

More important than 5G, in the near future, is Verizon's move to " LTE Advanced ":

It is more important for 2018, in our view, for several reasons. First, we believe mobile speeds are already more than sufficient for most users. The 20Mbps speeds most mobile networks can generate are already sufficient for most users. An HD video stream requires only 5-8Mbps. The average U.S. consumption exiting 2017 is 7GB according to the latest Ericsson Mobility Report. Current LTE networks can deliver this data in 45 minutes. LTE Advanced can do so in 5-10. Another way to look at this is that mobile operators will be able to offer a much more consistent level of service; consumers may value having 20Mbps consistently above peak speeds of 100-150Mbps. Second, the deployment of LTE Advanced and 5G should lower cost per GB of data by a factor of 10x or more as capex budgets remain flat with a downward bias for the foreseeable future. Thus an increase from 20Mbps to 100-150Mbps with LTE Advanced and more with 5G should allow an order of magnitude decline in cost per GB. Third, a lower cost per GB will allow operators to segment the market by speed and GB capacity. Hence, we believe an increasing number of customers will begin bumping up against the ~25GB threshold beyond which the operators may degrade service.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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