Jefferies & Co.’s Thomas Seitz today reiterates a Buy rating and a $45 price target on shares of Verizon Communications (VZ), writing that the company probably benefitted from a higher number than usual of customers upgrading their cell phone plan because of Apple’s (AAPL) iPhone 4S and faster 4G phones based on Google’s (GOOG) Android operating system.�
Seitz, looking back at AT&T’s (T) remarks few weeks ago about having record quarterly smartphone sales, and a high number of iPhone sales in particular, opines that something similar probably happened for Verizon in the quarter.�
We expect a similar phenomenon at Verizon during 4Q as consumers waited for the “next” iPhone instead of purchasing the “out-of-date” iPhone 4 which debuted on the Verizon platform earlier in 2011. Additionally, 4Q marked the first sales period in which Verizon had a full array of 4G-LTE handsets including the Bionic and RAZR from Mototola and the Galaxy Nexus from Samsung – which carry high subsidy factors as well.
Upgrades may have been 70% to 80% of wireless sales this quarter, he estimates, higher than normal.
The higher level of smartphone sales probably lowered the company’s gross margin in its wireless business to 43.3% from 45% previously, and, hence, he cut his Q4 EPS estimate by a penny to 54 cents.�
Still, Seitz argues the higher number of iPhone and 4G sales represents a positive in a higher net present value, thus supporting the positive stock view.�
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