Pacific Crest Gives Overview on Communications Services Sector

In a report published Monday, Pacific Crest Securities analyst Michael Bowen gave an overview on the Communications Services sector.

is Pacific Crest's top carrier pick with superior operating and financial metrics. Bowen commented, "We continue to believe VZ's premium valuation is warranted due to the greater growth prospects in wireless and greater opportunity for improvement in wireline EBITDA margin at Verizon. We expect Verizon to grow wireless retail postpaid revenue at 4.5% y/y, compared to 3.9% for the other two carriers in 2014. We also expect Verizon to end the year with a lower proportion of smartphone penetration (69% vs. T at 73%), which we believe will disproportionately benefit Verizon in 2014 and beyond as expected increased LTE data usage increases average revenue per account (ARPA)." Verizon is rated as Outperform by Pacific Crest with a $58 price target. With solid progress and possibly better EBITDA growth than Verizon,

is closing the performance gap. Bowen rated AT&T as Sector Perform. The analyst downgraded

from Outperform to Sector Perform as shares have been trading above Pacific Crest's $7.50 price target. Pacific Crest added that Sprint currently trades at a 22% premium to the group at 8.1x 2014 EV/EBITDA. Bowen wrote, "Sprint's network build-out and investment should pay off in late 2014, but we will have to see this translate into material upside to financial results to justify further valuation multiple expansion, in our opinion."