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Verizon Communications Inc. (NYSE: VZ) has underperformed the Dow Jones industrials and S&P 500 in 2019 with a gain of just 6.5%, and it has greatly lagged the recovery rally that has AT&T Inc. (NYSE: T) up 30% so far in 2019. Nomura/Instinet believes that Verizon is about to play some catch-up ahead. Whether the expected gains can overtake AT&T is one issue, but this is at least an above-consensus view from the firm.

Verizon was reiterated as Buy with a $65 target price on Wednesday. That is nearly 10% upside from the current $59.50 share price, and Verizon has that 4.1% dividend yield that gets added on for total return investors.

Nomura/Instinet’s Jeffrey Kvaal does still maintain some concerns about Verizon. The call sees net additional subscriber gains with limited churn. Postpaid phone net additions are set at 325,000 (versus a 280,000 consensus) and a recent price cut is what will keep the churn lower ahead. Those price cuts are also said to have only a modest impact on average revenue metrics and on Verizon’s margins.

One issue that stood out was the analyst’s belief that Verizon has seen relatively few price optimizers, and the Autopay condition reduces the applicability of the would-be price cut, while including Apple Music in the $80 Play More bundle limits the appeal of the lower Start plan. Kvaal’s report said:

We expect Verizon’s recent price reductions will drive 2H19 healthy net adds via higher gross adds and limited churn. We expect the ARPU/margin impact to be manageable in the near term. We do worry that a competitive response would erode these benefits in 2020.

Another issue addressed is that price cuts are generally deemed unusual here. The report suggests that its “not all roses and champagne.” Disappointment is expected to continue in the remaining wireline business, while Verizon has roughly 50% of its wireless base on the unlimited plans. The price cuts are said to imply that Verizon is finding the other half more difficult to migrate than expected. Kvaal added:

The success of the new plans may depend on the competitive response, and we understand that AT&T is watching carefully. Finally, an uncharacteristic and proactive price cut does not augur well for Verizon’s hope to charge a premium for 5G, in our view. This may limit its ability to promote high ASP 5G phones.

Verizon’s $65 target at Noruma/Instinet is considerably higher than the Refinitiv consensus analyst target price of $60.52. The stock has a 52-week trading range of $52.28 to $61.58.

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