The Zacks Analyst Blog Highlights:Verizon Communications, Vodafone Group, AT&T, Sprint and Comerica

Dec 06, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Dec. 6, 2013 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Verizon Communications Inc. (NYSE: VZ-Free Report), Vodafone Group plc (Nasdaq: VOD-Free Report), AT&T, Inc. (NYSE: T-Free Report), Sprint Corp. (NYSE: S-Free Report) and Comerica Incorporated (NYSE: CMA-Free Report).


Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Thursday's Analyst Blog:

FCC Gives Green Light to Verizon Deal

Verizon Communications Inc. (NYSE: VZ-Free Report) has finally won the U.S. Federal Communications Commission (FCC) approval for its $130 billion deal to buy a 45% stake in its wireless venture, currently owned by Vodafone Group plc (Nasdaq: VOD-Free Report). Both the companies have been mulling over this deal over a long time and news surfaced early this year about Verizon planning a possible buyout of its remaining stake of the wireless business.  

For Verizon, the total buyout of its wireless business would mean saving a substantial amount of the payment that slips to Vodafone's pocket. Verizon Wireless, with operating income over $21 billion not only remains a key driver of Verizon Communications' earnings, but also provides a competitive edge over big names like AT&T, Inc. (NYSE: T-Free Report) and the rapidly growing Sprint Corp. (NYSE: S-Free Report).

This deal is touted as one of the biggest in the telecom space after Vodafone's acquisition of Germany's Mannesmann AG in 2000 (for approximately $142 billion) and Time Warner Inc.'s merger with AOL (for $124 billion) in 2001. We believe the complete takeover of its wireless business would translate into greater synergies for Verizon, which already holds a significant place in the U.S. wireless market.

However, the eventual effect of this deal on Verizon's investors is uncertain. Verizon shareholders are eyeing the dividend that is currently being remitted to Vodafone. But questions arise on whether the saved dividend payment to Vodafone will compensate for the debt borne by the company for carrying out the transaction, or whether the deal will leave a neutral impact on its investors in case it looks for possible solutions to maintain its status quo in terms of dividend payout.

Moreover, the deal's impact on Verizon's margin expansion after borrowing for the transaction is also crucial to its growth.

Verizon currently has a Zacks Rank #3 (Hold).

Should You Stay Invested in Comerica?

Shares of Comerica Incorporated (NYSE: CMA-Free Report) have recorded a solid year-to-date return of 46.4%. Impressive organic growth, strong capital deployment activities and continuous improvement in credit quality were the driving factors behind this growth story.

However, we are not confident that these factors will further strengthen down the road as there will be considerable pressure on its bottom line owing to the sluggish economic recovery and stringent regulatory requirements.

After analyzing the company's fundamentals following the third-quarter 2013 earnings release, we would suggest to stay invested in it. However, adding fresh shares of Comerica to your investment portfolio may not be a good idea given the expected headwinds.  

Why This Stance?

Comerica's third-quarter 2013 earnings per share of 78 cents beat the Zacks Consensus Estimate by 7 cents. Also, earnings came in 2 cents higher than the prior-quarter earnings.

Better-than-expected results were driven by higher non-interest income and lower non-interest expense, partly offset by a fall in net interest income. Moreover, capital ratios and credit quality were impressive and reflected the company's financial strength.

Comerica's capital deployment activities reflect its efforts towards enhancing shareholder value. Apart from the regular payment of quarterly cash dividend, the company has an effective share repurchase program in place. Notably, for the quarter ended Sep 30, 2013 the share repurchases, combined with dividends resulted in a total payout of about 70% of net income to shareholders.

However, Comerica's bottom-line growth is expected to be sluggish in the next few quarters. Increasing competition has led to a shift in the portfolio mix towards lower yielding loans and lower reinvestment rates for the securities portfolio, thereby affecting net interest margin. Moreover, loan growth is expected to be modest reflecting lower demand due to the economic uncertainty.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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