Comcast (CMCSA) Should Buy Verizon (VZ) - Citi

Citi analyst Jason Bazinet is making a bold case that Comcast (NASDAQ: CMCSA) should acquire Verizon (NYSE: VZ).

Bazinet cited four reason why a deal makes sense for both:

1) Wireless would allow Comcast to extend Internet connectivity beyond the home.

2) Both cable and wireless firms will need to push fiber deeper into neighborhoods. As a combined firm, this investment needs to be made only once, not twice.

3) Verizon is apt to be the 2nd biggest beneficiary of wireless consolidation (after Sprint and TMobile).

4) A reduction in the corporate tax rate is not yet reflected in Verizon’s multiple suggesting potential upside to Comcast if the tax code changes

He said the timing may be right for four reasons:

1) Comcast has a long history of trying to acquire assets that have fallen on difficult times (AT&T Broadband in ‘01, Disney in ‘04, NBCUniversal in ‘09, Time Warner Cable in ‘14). Verizon’s equity has fallen 17% in 2017.

2) Press reports (Bloomberg) suggest Verizon is open to merger talks with Disney, CBS or Comcast.

3) The regulatory landscape – including the FCC and DoJ – may be more amenable to business combinations versus the last administration.

4) 2017 is the first year where Comcast’s market capitalization exceeds Verizon’s.

The analyst estimates the pro forma firm would generate $2.1B of annual synergies.

He argues a deal would be neutral to positive for Comcast's stock. "Assuming a 20% premium for Verizon’s equity (paid for with 75% equity / 25% cash), we estimate Comcast’s equity would rise to $41...," he said

The biggest loser from a deal would be Dish (NASDAQ: DISH), which he downgraded today.

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