UPDATE: Macquarie Downgrades Verizon Communications (VZ) to Underperform; Analyst Strongly Prefers AT&T (T)

(Updated - May 12, 2015 10:24 AM EDT)

Macquarie earlier downgraded Verizon Communications (NYSE: VZ) from Neutral to Underperform with a price target of $45. Analyst Kevin Smithen noted three strategic blunders over the past two years, including buying a stake in Vodafone (NASDAQ: VOD), its pending sale of FiOS and copper assets to Frontier Communications (NASDAQ: FTR), and $5 billion in buybacks. The analyst strongly prefers AT&T (NYSE: T) and thinks investors should sell shares of Verizon before consensus estimates begin to adjust for falling ARPUs and its dilute deal with Frontier.

"While we hold VZ mgmt. in high regard as an operator, we believe a series of questionable strategic decisions beginning with the Vodafone deal have left the company with a weak earnings outlook in ’16 & ’17. Moreover, we believe the company continues to flip-flop on its messaging regarding managing the business for cash flow vs. sub retention/growth." said Smithen.

"Recent VZ data promotions over the past month are likely to pressure ’15 ARPU and margins. We also believe that VZ will run into LTE capacity issues in certain markets later in ’15 and ’16 before densification and refarming efforts fully take hold. Meanwhile, the retirements of well-respected VZ leaders Dan Mead and Tony Melone leave big shoes to fill at a time when wireless competition is heating up and network and spectrum strategies are becoming more complex. We do not think that any of these is discounted yet in the share price as the shares trade at 13.7x and 13.9x our ’16 and ’17 EPS forecasts of $3.65 and $3.58, respectively," added the analyst.

For an analyst ratings summary and ratings history on Verizon Communications click here. For more ratings news on Verizon Communications click here.

Shares of Verizon Communications closed at $49.80 yesterday.

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