U.S. Group Verizon and South Korea’s Samsung Electronics Sign $6.65 Billion 5G Deal

Verizon Communications, an American multinational telecommunications conglomerate, and South Korean multinational electronics company Samsung Electronics have announced to sign a deal worth $6.65 billion for 5G network equipment and services.

“With this latest long-term strategic contract, we will continue to push the boundaries of 5G innovation to enhance mobile experiences for Verizon’s customers,” Samsung said in a statement, Reuters reported.

Samsung noted in a regulatory filing the period of the contract, which Samsung signed with Verizon, is from June 30, 2020 to end-2025, Reuters added.

Samsung Electronics shares rose over 3% to KRW 58,300 on Tuesday. On the other hand, Verizon’s shares rose 0.12% to $60.55 in after trading hours on Friday and the stock is up about 2% so far this year.

Verizon stock forecast

Eleven analysts forecast the average price in 12 months at $62.30 with a high forecast of $70.00 and a low forecast of $57.00. The average price target represents a 3.01% increase from the last price of $60.48. From those 11 analysts, five rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $60 with a high of $71 under a bull-case scenario and $42 under the worst-case scenario. Verizon stock price forecast was raised by Deutsche Bank to $62 from $60.

Other equity analysts also recently updated their stock outlook. Verizon Communications had its price objective boosted by analysts at UBS Group to $60 from $59. The brokerage presently has a “neutral” rating on the cell phone carrier’s stock. Citigroup boosted their price objective to $60 from $55 and gave the stock a “neutral” rating. Oppenheimer reaffirmed a “buy” rating and set the price target at $70.

Analysts’ views

“Attractive business mix, as wireless market leader. Wireless service revenue 70% of consolidated revenue, and wireless EBITDA 85% of consolidated EBITDA. Dividend yield and potential buybacks provide some support, while the transition to 5G creates opportunities and risks, with mid-band spectrum needs in focus,” said Simon Flannery, equity analyst at Morgan Stanley.

“Our price target for Samsung Electronics is W70,000: We continue to employ a residual income (RI) valuation model, cross-checked against P/BV analysis. At our W70,000 price target, the 2021 P/B multiple would be 1.4x, which is in line with its long-term mid-cycle valuation level of 1.4x. Our terminal growth rate assumption is 5%, and we assume an 11.5% cost of equity, based on a beta of 1.0,” said Shawn Kim, equity analyst at Morgan Stanley.

Upside and Downside risks

Upside: 1) Continued strength in wireless. 2) Rates remain lower for longer. 3) Defensive market. 4) Developments around mobile video, and internet of things – highlighted Morgan Stanley.

Downside: 1) Rising interest rates make the dividend yield less attractive. 2) Competitive price pressure from wireless competitors. 3) Wireline business faces significant secular pressures. 4) Spectrum spend/M&A pressure Balance Sheet metrics.

Check out FX Empire’s earnings calendar