Verizon Communications (VZ) could be a seller rather than a buyer amid speculation over telecom industry mergers, with Comcast (CMCSA) a prime suitor despite hurdles to a deal, analysts say.
A Comcast-Verizon "merger of equals" would combine the nation's biggest provider of landline broadband services with the biggest wireless phone company, says BTIG Research in a blog.
Verizon's slowing growth and debt load make it unlikely it could pull off another large acquisition, such as Dish Network[ticker symb=DISH], says Craig Moffett, analyst at MoffettNathanson.
Verizon on April 20 reported earnings and revenue that missed analysts' estimates.
"After (last) week's weak first-quarter results, Verizon is cheaper than ever," said Moffett in a blog. "So weak, in fact, that something will have to change. It is not crazy to imagine that Verizon might be more likely to be a seller of assets than a buyer."
Comcast, controlled by the Roberts family, has a market valuation of $181 billion, slightly below Verizon's $193 billion market cap.
"Is it likely that Comcast, to whom Verizon is more and more frequently being linked in the speculative parlor game of who will buy whom, would want to trade its own equity for Verizon's," added Moffett. Comcast owns media giant NBCUniversal. Verizon acquired internet firm AOL in 2015. Its purchase of Yahoo (YHOO) is expected to close in June.
Comcast reports first-quarter earnings on April 27. Comcast stocked edged down 0.4% to close at 38.01 on the stock market today. Shares in Verizon dipped 0.4% to 47.05.
IBD'S TAKE: Comcast stock is up 10% in 2017 amid expectations that regulatory pressure for cable TV companies will ease under the Trump administration. Comcast stock is trading just below a technical buy point of 38.54. Learn more about Comcast's chart and growth trends at IBD Stock Checkup.
Verizon Chief Executive Lowell McAdam last week opened the door to strategic talks with Comcast, Walt Disney (DIS) and others. Verizon in 2015 bought out Vodafone Group's (VOD) 45% stake in Verizon Wireless for $130 billion.
Wireless competition has intensified, with T-Mobile US (TMUS) gaining share vs. AT&T (T) and Verizon.
Merging with Comcast would boost Verizon's strategy to deliver 5G wireless services in urban areas, says BTIG Research. Federal regulators would prefer a Verizon-Comcast merger to further cable TV industry consolidation, says BTIG Research. Comcast has also been viewed as a possible bidder for T-Mobile.
The Obama administration in 2015 blocked Comcast's purchase of Time Warner Cable, which was later bought by Charter Communications (CHTR).
"Imagine the regulatory outrage created by combining the largest wireline/wireless company that dwarfs all others," said BTIG Research. "We have to imagine the same constituents that would oppose Comcast-Charter would oppose Comcast-Verizon. That being said, it does appear that regulatory approval would be easier than Comcast-Charter, given the lack of near-term substitution between wireline and wireless broadband."
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