2 Telecom Stocks Slapped With Analyst Bear Notes

Jefferies downgraded T on competition conerns, and cut its price target on VZ to $52

by Emma Duncan

Published on Jun 7, 2018 at 10:46 AM

Telecom concerns and business rivals AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) received bear notes from Jefferies this morning. Below, we will take a look at how each stock has been faring on the charts, and what this latest round of negative brokerage notes could mean for T and VZ shares. 

Entertainment Sector Woes Prompt AT&T Downgrade

Jefferies downgraded AT&T stock to "hold" from "buy," and slashed its price target by $5 to $35, citing growing margin pressure in the company's entertainment sector, considering increased competition from Netflix (NFLX), Amazon (AMZN), and Hulu. T stock is defying the downgrade, and was last seen 1% higher at $33.71. From a longer-term perspective, AT&T shares touched a two-year low of $31.17 on May 9 -- amid reports the company paid Michael Cohen for insights into President Donald Trump -- and have a ways to go before filling their late-April, post-earnings bear gap. 

Ahead of Jefferies' bearish move, 12 of the 19 brokerage firms following the stock sported tepid "hold" ratings. Meanwhile, AT&T stock's average 12-month price target of $37.61 comes in at a nearly 12% premium to current levels.

Elsewhere, options traders have been heavily bullish in recent weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows T's 10-day call/put volume ratio at 3.62, ranking in the highest annual percentile. This lofty ratio suggests that calls have been purchased over puts at a much faster-than-usual clip during the past two weeks. 

Verizon Price Target Slashed at Jefferies

VZ was slapped with a price-target cut to $52 at Jefferies. This hasn't fazed VZ shares, however, which were last seen up 1% at $48.91. Verizon stock has been struggling with the $200 billion market cap all month, and this area has been a point of contention for years. The shares' 160-day moving average has also kept VZ gains in check since February, though the $46 area has emerged as support.

In the options pits, sentiment has been optimistic, with near-term options traders heavily call-skewed at the moment. This is based on the security's Schaeffer's put/call open interest ratio (SOIR) of 0.55. Not only does this show call open interest nearly doubles put open interest among options expiring within three months, but the reading ranks just 10 percentage points from a 12-month low.

However, now could be an attractive time to buy premium on VZ options. The security's Schaeffer's Volatility Scorecard (SVS) stands at 83 out of a possible 100. This high ranking shows that the shares have tended to make outsized moves over the past year, relative to what the options market has expected -- which could be a boon to potential premium buyers.

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