Verizon Communications, Inc. (NYSE:VZ) is set to benefit from the explosive 4G growth, according to a UBS analyst who has upgraded the stock to buy from neutral.
We believe Verizon is the best-positioned company in wireless and expect it to gain share given its leading position in 4G, analyst John Hodulik wrote in a note to clients.
With the lowest penetration of smartphones, the analyst expects average revenue per user (ARPU) and service revenue growth to continue to accelerate in the next year while the company maintains industry-high margins.
Hodulik, who increased his price target on Verizon stock to $42 from $37, said along with his estimated 5.7 percent yield, this equates to almost 25 percent expected total return to shareholders investing in a well-capitalized company in a defensive industry with minimal exposure to Europe.
We believe Verizon shares provide an attractive valuation (11.6x 2013E P/E, 5.1x EBITDA and 8.3% FCF yield) with double-digit EPS growth in the next two years (vs 2-3% for the S&P), Hodulik added.
Shares of Verizon closed Monday's regular trading session at $36.25 on the New York Stock Exchange.