While VZ stock has consistently underperformed the S&P 500, the telecommunications giant often attracts income-oriented investors, thanks to its dividend. If 5G wireless services reignite earnings and revenue growth, however, Verizon stock might have much greater appeal.
Verizon is the largest provider of wireless services in the U.S. It also sells landline services to consumers in the Northeast and business services globally.
Amid stock market volatility, shares in Verizon Communications (VZ) are down 10% in 2022 as of the market open on May 1.
Verizon stock fell after the telecom giant reported first quarter earnings and lowered expectations for 2022.
Verizon may be in a tough position as wireless competition heats up versus AT&T (T) and T-Mobile US (TMUS), said Craig Moffett, analyst at Moffett Nathanson. Rather than chase market share, Verizon has opted to bolster average monthly subscriber revenue.
Verizon Stock: Competitive Positioning A Weak Spot?
“Verizon’s ‘best network’ positioning has served them well and it still has real power,” said Moffett. “But whether they actually do have the best network anymore is debatable; they are now playing to preserve rather than enhance their reputation. Their prices are relatively high. They want to hold the line on promotionality.”
Verizon and telecom rival AT&T are viewed as defensive plays because of high dividends. A Dow component, Verizon stock pays a 4.6% dividend.
But near-term catalysts for VZ stock are lacking, said Wells Fargo analyst Eric Luebchow in a report.
“Verizon had a challenging Q1 print, with a more cautious outlook on both the top and bottom line as elevated competition and inflationary pressures leave their mark,” he said. “The current macro environment is also pressuring the business, with higher energy, freight, labor and interest expense costs expected throughout the year. Without a notable catalyst on the horizon, VZ stock may be in the penalty box temporarily.”
One overhang on VZ stock involves mid-band radio spectrum it bought for 5G wireless services. Verizon stock spent $53 billion in a government auction, including incentive payments to satellite operators and clearing costs. The purchase of mid-band spectrum for 5G services will delay a VZ stock buyback.
VZ Stock: Tracfone Deal Finally Closes
VZ stock in May 2021 sold a 90% stake in its media and advertising business to Apollo Global Management for $5 billion.
At Goldman Sachs’ Communacopia Conference in September, Verizon Chief Executive Hans Vestberg talked about five vectors of growth for the company.
In a bright spot, Verizon in November finally closed the $6.25 billion acquisition of Tracfone from Mexico-based America Movil (AMX). Tracfone sells pre-paid wireless services.
For Verizon stock, one problem is that 5G wireless competition is expected to intensify. Cable TV firms are ramping up new promotions with aggressive pricing.
T-Mobile US’s acquisition of Sprint created a stronger rival. In addition, AT&T recently agreed to merge its WarnerMedia business with Discovery (DISCA). As a result, a slimmed-down AT&T is expected to have more money to invest in 5G wireless technology and fiber-optic services.
AT&T, Verizon and T-Mobile launched new promotions after Apple (AAPL) rolled out new iPhone 13 models on Sept. 14.
Verizon Stock: Mid-Band Spectrum Key To 5G Revenue Growth
Verizon did not purchase spectrum in the recent Auction 110 for 3.45 GHz airwaves.
Now that Verizon owns sufficient 5G mid-band spectrum, its network build-out will be key. Verizon aims to reach 175 million people by the end of 2022 with mid-band spectrum-based 5G services that provide faster data speeds.
Also, Verizon plans to use the 5G mid-band spectrum to deliver fixed broadband services to homes. Cable TV companies currently dominate in residential broadband. The telecom said its fixed broadband service will reach 30 million homes by the end of 2023.
Verizon expects 5G business services to gain momentum in 2022. It’s investing in “mobile-edge compute” sites that provide private 5G business services.
VZ Stock: Content Deals
New York-based Verizon has partnered with Walt Disney (DIS) in video streaming services. Disney and Verizon in August expanded their streaming partnership to include Hulu and ESPN+. Verizon has also partnered for Apple (AAPL) Music services and with sports leagues.
In December 2020, Verizon added Discovery (DISCA) as a video streaming partner.
“We continue to believe Verizon’s streaming partnerships with Disney, Discovery, NFL as well as gaming partnerships with Apple/Google are driving higher sell-through of premium unlimited plans,” Raymond James analyst Frank Louthan said in his note to clients.
VZ Stock: Top Management New
Thanks to low interest rates, Verizon stock has posted some good runs since the global recession of 2008-2009. The telecom giant at one point jumped into the IBD Leaderboard. It’s a curated list of leading stocks that stand out on technical and fundamental metrics.
Verizon is much more exposed to the U.S. wireless market than rival telecom AT&T. Verizon gets nearly 85% of adjusted earnings from its wireless business.
The company has paid down debt since it bought Vodafone Group‘s (VOD) 45% stake in a wireless joint venture for $130 billion in early 2014.
Further, its senior leadership is new. Vestberg served as CEO at network gear maker Ericsson (ERICY) before joining Verizon. Vestberg and Chief Strategy Officer Rima Qureshi, also an Ericsson veteran, both came to Verizon in 2017.
VZ Stock Fundamentals In A Maturing Industry
Revenue growth remains an issue. Verizon’s long-range problem is that the U.S. wireless market is saturated. Many consumers have delayed upgrading to new smartphones. Plus, data-gobbling mobile video hasn’t panned out as a big moneymaker.
Verizon’s first-quarter adjusted earnings edged by estimates while revenue met Wall Street targets.
For the quarter ending March 31, Verizon earnings were $1.35 per share, excluding items. Revenue rose 2% to $33.6 billion, including the divestiture of Verizon Media.
A year earlier, Verizon earned $1.36 a share on revenue of $32.9 billion. Analysts had projected Verizon earnings of $1.34 a share on revenue of $33.6 billion for the quarter.
On the positive side, the company said it lost 36,000 postpaid wireless phone subscribers versus analyst estimates for a 75,000 loss. Wireless service revenue rose 9.5% to $18.3 billion.
Verizon updated its 2022 outlook, forecasting that adjusted per-share earnings will come in at the lower end of previous guidance.
For full-year 2022, Verizon said it now expects “reported wireless service revenue growth at the lower end of the previously guided range of 9% to 10%.”
Also, the company forecast “adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) growth at the lower end of the previously guided range of 2% to 3%.”
Verizon Stock: 5G Wireless To The Rescue?
Verizon’s 5G mobile network uses both lower-band and high frequency airwaves. Its lower-band 5G services are widely available but don’t offer much improvement in data speeds over older 4G networks.
Verizon’s 5G “Ultrawideband,” or UWB, mobile services use high frequency, mmWave spectrum.
Pundits expect 5G wireless to have a role in manufacturing automation, cloud gaming, autonomous vehicles, drones and remote health care services.
VZ Stock Analysis: Is It A Buy Right Now?
Verizon stock also holds an IBD Composite Rating of 45 out of a best possible 99, according to IBD Stock Checkup. IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Verizon stock, meanwhile, has an Accumulation/Distribution Rating of E. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
As of May 1, VZ stock trades below a buy zone. It holds a flat base entry point of 54.80.
Investors could take a look at other 5G stocks, such as chip makers or network gear suppliers.
Meanwhile, emerging 5G wireless apps could take years to generate significant revenue. Rather than buy Verizon stock, income-oriented investors might consider a large ETF such as SPY, which tracks the S&P 500.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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