KeyBanc Lowers Verizon Price Target Following FYBR Acquisition

KeyBanc analysts lowered their price target for Verizon Communications (NYSE:VZ) to $44 from $46, while maintaining an Overweight rating on the stock. The analysts cited concerns surrounding Verizon's recent announcement of the FYBR acquisition, which they view as a suboptimal allocation of capital.

The analysts pointed out that while key performance indicators and business fundamentals continue to improve, the anticipated benefits of capital returns through buybacks are now likely delayed until 2027-2028, which diminishes the bull case for investors. The analysts argue that the acquisition of FYBR could dilute free cash flow (FCF), earnings per share (EPS), and increase leverage, while only marginally enhancing growth.

KeyBanc believes that buybacks at Verizon's 11% equity FCF yield and around 6.5% dividend yield would likely generate a higher return on invested capital (ROIC) compared to the FYBR acquisition, given its valuation. The analysts also noted that Verizon will need to demonstrate the economics of bundled or converged mobile and broadband customers, a process that could take several years. Meanwhile, investors could gain similar exposure through AT&T (T), which is trading at a discount with lower leverage compared to pro-forma Verizon.