Verizon’s shares fell on Monday after being downgraded by Citi.
Verizon’s shares fell more than 1% on Monday after being downgraded by Citi. Citi downgraded the company from buy to neutral but maintained its $62 price target.
Verizon is the second-largest wireless carrier in the U.S. The company’s shares have done well over the past year and are up more than 12% from a year earlier. But according to Citi analyst, Michael Rollins, this may not be enough for the company to remain competitive long-term.
In a note to clients, Rollins explained that “…we believe national wireless firms that take more aggressive steps to shape their long-term strategic and competitive position in the industry have a better chance of creating value over the next 12 months.”
Verizon’s Challenges Ahead
There are a number of changes coming to the wireless industry that Verizon will have to contend with in the coming years. Listed below are the two biggest challenges the company will face.
Potential merger between Sprint and T-Mobile
First, there’s the potential merger between Sprint and T-Mobile. T-Mobile announced its plans to acquire Sprint for $26 billion over a year ago and it appears the deal is close to being finalized.
The Justice Department hasn’t yet approved the deal but the FTC approved it last month. Verizon and AT&T are larger than both companies so if T-Mobile and Sprint merge, this would create a much stronger competitor.
A low barrier to entry
Thanks to upgraded technology, the barrier to entry for the wireless carrier industry is much lower. This has given rise to a number of new competitors which have different margin goals and don’t have to deal with legacy pricing. According to Rollins, all of this lowers Verizon’s future growth opportunities.
Verizon’s Next Steps
Verizon’s shares have held steady in 2019 but have largely underperformed in comparison to AT&T, Sprint, and T-Mobile. In spite of these concerns, Rollins said he doesn’t foresee any issues with the company’s upcoming quarterly earnings report.
Rollins said that the best way for Verizon to get ahead is by acquiring DISH, which could give the company back its competitive edge.
