Warren Buffett and Berkshire Hathaway Inc.'s other investment decision-makers may have the right idea on Verizon Communications Inc.
Berkshire sold the majority of its Verizon shares last quarter, a filing showed Tuesday, even as analysts predict the No. 1 U.S. wireless carrier's stock will climb about 10 percent over the next year. Verizon analysts -- some of whom cut their recommendations to hold from buy in recent months -- may still be too bullish in terms of their price forecasts, and Berkshire's decision to substantially cut its exposure supports this. It seems that each time Verizon rises to analysts' targets, it soon disappoints.
Even on Monday, after Verizon unveiled its new unlimited data offerings, investors seemed almost unfazed, if not disappointed, by its clearly defensive move. It was just a month ago on the company's fourth-quarter earnings call that management reiterated it didn't feel the need to implement an unlimited data package amid the industry price war. So much for that. Verizon's stock has lost almost 2 percent this week and 10 percent over the past six months.
Berkshire accumulated its Verizon position in the March 2014 quarter, when the company completed its purchase of the half of Verizon Wireless it didn't already own (the service had been a joint venture with Vodafone Group Plc before that). Since then, the stock's total return including dividends has been about 15 percent, trailing AT&T Inc. and T-Mobile US Inc., according to data compiled by Bloomberg.
AT&T, the second-largest U.S. carrier, is in the process of acquiring TV network owner Time Warner Inc. in a bet that popular video content will be a selling point to draw mobile-phone customers to its service. That transaction is pending regulatory approval. Meanwhile, T-Mobile is probably the year's most anticipated acquisition candidate as it steals market share from the big guys. And Sprint is, well, Sprint -- a misnomer for its slow turnaround progress.
Their largest rival is Verizon, but it isn't giving investors a whole lot to get excited about this year. Or at least not yet. There is the pending Yahoo! Inc. acquisition, the price of which the companies are close to renegotiating following security breaches at Yahoo, Bloomberg reported Wednesday. Still though, Verizon shares were slightly down on the news.
Perhaps something bigger is in the offing. While Verizon says its network can handle the added traffic from its new unlimited data plans, a merger with Dish Network Corp. may be more likely now. Amy Yong, an analyst at Macquarie Research, wrote in a note Monday that far lower-than-expected spending on the recent government-led spectrum auction may have been partly driven by Verizon as it secures dry powder for a big acquisition instead.
Recent speculation was that Verizon was eyeing a deal for Charter Communications Inc., which also now owns Time Warner Cable. Together they'd vault past Comcast Corp. as the country's largest internet provider. But if network capacity is what Verizon's after -- rather than just cable and wi-fi offerings to bundle with its wireless service -- then Dish would fit the bill. The $29 billion satellite-TV provider, controlled by billionaire Charlie Ergen, has been sitting on valuable wireless spectrum, including the AWS frequencies that Verizon has shown interest in, and Ergen needs to decide what to do with it.
As Verizon cedes customers to T-Mobile, its investors could become increasingly open to a megadeal involving Dish. On the other hand, they weren't thrilled by the Charter chatter and big, expensive transactions like these are often tough to justify. Buffett may be smart to take some chips off the table.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
This was just one of the changes Berkshire made to its investment portfolio, including adding to his Apple Inc. and airlines stakes.
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