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 Communications (VZ) faces a fierce marketing battle amid the deployment of 5G networks.
Verizon may be in a tough position as wireless competition heats up with AT&T (T) and T-Mobile US (TMUS), analysts say. Rather than chase subscriber market share, Verizon has focused on average monthly subscriber revenue.
VZ Stock: Market Share Losses
Craig Moffett, analyst at MoffettNathanson, downgraded Verizon stock to under-perform on Aug. 18. He noted that “whether it’s total phones or postpaid phones, Verizon has lost market share in every quarter since the second quarter of 2020.”
“Verizon has done its best to avoid being dragged into AT&T’s promotional abyss, but their efforts have been met with only limited success,” added Moffett.
Meanwhile, Warren Buffett’s Berkshire Hathaway (BRKB) unloaded its remaining 1.4 million shares of Verizon stock in the second quarter.
June-quarter earnings for VZ stock missed estimates. The telecom company lowered 2022 EPS guidance for Verizon stock.
Verizon said it added only 12,000 postpaid wireless phone subscribers in Q2 versus estimates of 144,000.
In the year-earlier period, Verizon added 275,000 postpaid wireless phone customers.
“Verizon’s issue is around the marketing and branding image,” said Raymond James analyst Frank Louthan in a report. “For whatever reason the network quality isn’t enough to bring customers in the door. Management has thrown in the towel and the guide implies they are getting back into the knife fight for subscribers with heavier promotion and retention spending through the rest of 2022.”
Verizon Stock Versus S&P 500
VZ stock is down about 15% in 2022.
Telecom stocks had been viewed as a defensive play amid worries that a recession may hit the U.S. economy. A Dow component, Verizon stock pays a 4.6% dividend.
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 midband spectrum for 5G services will delay a VZ stock buyback.
VZ stock in May 2021 sold a 90% stake in its media and advertising business to Apollo Global Management for $5 billion.
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.
Verizon Stock: Mid-Band Spectrum Key To 5G Revenue Growth
Now that Verizon owns sufficient 5G midband spectrum, its network buildout will be key. Verizon aims to reach 175 million people by the end of 2022 with midband spectrum-based 5G services that provide faster data speeds.
Also, Verizon plans to use the 5G midband 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. Also, 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 a 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. Hans Vestberg served as chief executive 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.
VZ stock fell after the telecom giant reported second-quarter earnings and lowered expectations for this year.
For the June quarter, Verizon earnings came in at $1.31 a share, excluding items. Revenue rose 3% to $33.8 billion, edging by estimates.
A year earlier, Verizon earned $1.37 a share on revenue of $34.77 billion. Analysts had projected Verizon earnings of $1.33 a share on revenue of $33.77 billion.
In the Verizon earnings report, Q2 wireless service revenue rose 9% to $18.4 billion vs. analyst estimates of $18.39 billion.
For full-year 2022, Verizon forecast adjusted EPS in a range of $5.10 to $5.25, down from earlier guidance of $5.40 to $5.55.
The telecom now expects adjusted EBITDA growth of minus 1.5% to flat vs. earlier guidance for adjusted EBITDA growth 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.
Verizon has partnered with Amazon Web Services, the cloud computing arm of Amazon.com (AMZN) to develop 5G apps for the web-connected industrial devices. Another partner is IBM (IBM).
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?
VZ stock holds a Relative Strength Rating of 28 out of a best possible 99, according to the IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or better.
Verizon stock also holds an IBD Composite Rating of 36 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 D-minus. 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 Aug. 18, VZ stock has no valid entry point. It needs to forge a new base.
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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