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Tuesday, September 26, 2006

Verizon's Downgrade (VZ)(BLS)(T)(CMCSA)

When a stock hits an investment bank's target price, the analyst can either raise the price target higher or cut the stock to a "hold". With Verizon near the firm's $38 price target, AG Edwards cut Verizon.

Verizon's stock has done well. It is up from a 52-week low of $29.13, and trades at $37.43, even after the downgrade. Other telecom stock like AT&T and Qwest have had similar runs.

In Verizon's case, Wall St. must wonder if there are any unspoken concerns at Edwards about the phone companies massive fiber-to-the-home initiative. Verizon is spending billions of dollars to convert its network to deliver higher speeds, but it is still unclear how much share they can get from cable operators like Comcast.

The reason that there may be caution about Verizon's stock price is that it is betting on fiber earlier than other AT&T/BellSouth and Qwest. They are, in essence, a canary in the coal mine. If the bird comes out health, Verizon may run higher. But, if uptake for the new service is slow, Verizon's share price is likely to be hurt. Perhaps badly.

Rochdale also downgraded Verizon last month, moving the stock from a "buy" to a "hold". The thinking among analysts is that the company's valuation will have to be proven out in the fiber trials.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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