Oppenheimer has upgraded telecom giant Verizon Communications (NYSE:VZ) to outperform from perform, saying that the company is poised to benefit from the cloud computing trend.
Prominently, the industry is seeing solid growth from Cloud Computing, which should benefit Verizon as well given its modern mobile/wireline broadband networks, analyst Timothy Horan wrote in a note to clients.
We see cloud services as the third major wave of internet services and Verizon outperformed the market by approximately 35% in the prior two waves, which lasted about two years on average. We believe that Verizon has another strong year ahead of it, Horan said.
The analyst said Verizon is in an optimal position to outperform over the next 12-18 months as telecom services stocks should benefit from Cloud/internet growth. The company is gaining wireless share due to its high quality network and handset line-up, including Apple's iPhone.
Horan believes Verizon will have a competitive advantage in terms of 4G coverage by the end of the year, when it covers nearly two-thirds of the country far ahead all its competitors, allowing the company to gain a significant foothold in the 4G beachhead.
The company's state-of-the-art LTE network is generating very strong sales, in particular of MiFi routers and dongles. Last quarter, Verizon sold about 350K 4G wireless internet devices Horan estimates the company is on pace to surpass this in the second quarter, which should bode particularly well for average revenue per user growth.
The analyst expects postpaid net adds of 900K, which is flat sequentially and up an impressive 50 percent from last year, driven by smartphones/internet devices.
The analyst, who has a price target of $42 on Verizon stock, also raised his 2011 earnings estimate by 2 cents to $2.22 a share, in line with Street expectations.
Since reaching a 52-week high of $38.95 on March 30, 2011, Verizon's share price has declined by 9 percent versus a 3 percent decline for the market, which represents a good buying opportunity for the stock.
We believe our sector is benefiting from growing expectations on Cloud Computing growth and a better regulatory environment, which clearly also should help Verizon, Horan added.
Shares of Verizon closed Tuesday's regular trading session at $35.38 on the New York Stock Exchange.