AT&T (T) and Verizon (VZ) Downgraded at Oppenheimer on Stretched Valuation

February 25, 2021 9:15 AM EST
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Oppenheimer analyst Timothy Horan downgraded AT&T (NYSE: T) and Verizon (NYSE: VZ) to “Perform” from “Outperform” amid high valuation and following C-band auction results.

Investors were paying close attention to C-band auction results, which showed that Verizon made gross bids of more than $45.5 billion. The FCC said total winning bids reaching over $81.2 billion.

According to results announced yesterday, Verizon’s total bids were $45,454,843,197, followed by the second-placed AT&T, which spent more than $23.4 billion. T-Mobile bid over $9.3 billion.

As a result, Verizon won the highest number of licenses (3,511), AT&T got 1,621 licenses, followed by United States Cellular with 254, T-Mobile with 142 licenses, and Canopy Spectrum with 84.

“This was a must-win auction for VZ as it had to acquire 5G mid-band spectrum to compete with TMUS's network quality. However, it will take at least a year to start deploying this spectrum and revenues generated from it will take a few years. VZ’s EV/EBITDA increases by 1x to ~8x the high end of its historical range. It will have to pay ~$53B, including $7–8B of payments to satellite incumbents resulting in leverage of ~3x vs. 2.3x today,” Horan said in a note.

“T is in a similar situation as VZ, but has less financial flexibility. It also needs this spectrum to compete with TMUS and it appears that it will sell part or all of DTV at ~$15B, or a very low 20% FCF yield. It is currently not paying any cash taxes, but this won't last, the combination drives a very high normalized dividend payout ratio, without slashing any OPEX/CAPX.”

Overall, the analyst sees T-Mobile US (NASDAQ: TMUS) as a leader. Results were a “major positive” for the company. He believes the business is “uniquely positioned” this year.

“Its successful rollout of 2.5GHz was the catalyst for the higher auction prices and its spectrum holdings satisfy nationwide 5G coverage with mid-band. We think it will aggressively market a quad-wireless bundle including mobility, 5G fixed wireless, and TVision in 2022 after it migrates a majority of Sprint’s customers to the TMUS network.”

Moreover, Horan shared his thoughts on Dish Network (NASDAQ: DISH) with a potential home run in place for the company.

“We were surprised DISH didn't spend much, although it owns ~20MHz of CBRS nationwide and can combine this with unlicensed spectrum. It's building a 5G network with next-gen wireless cloud technologies (O-RAN) and partnering with key vendors as discussed in our C- Band White Paper. The key is if it partners with a hyperscaler, which would help it develop a wireless network platform and be highly disruptive,” he concluded.

Shares of Verizon benefited recently as Warren Buffett's Berkshire Hathaway initiated a large position.

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