Even though VZ stock (NYSE:VZ) has persistently lagged behind the S&P 500, the telecom behemoth frequently draws income-seeking investors due to its dividend. However, Verizon stock may be considerably more appealing if 5G cellular services rekindle profitability and sales growth.
According to a Morgan Stanley research, Verizon Communications (VZ) is currently trading at a low value not seen since 2017. Amid the market downturn and Fed rate increases, investors should exercise caution while making purchases.
In 2022, VZ stock (NYSE:VZ) has decreased by 26%. About 25% of the S&P 500 is down.
VZ stock’s third-quarter earnings are due on Friday, October 21. According to analysts, Verizon stock’s EPS would decrease by 9% to $1.28.
With the rollout of 5G networks, Verizon is up against a brutal marketing war. Apple (AAPL) has also unveiled the new iPhone 14. New campaigns were launched in response by wireless service providers.
On September 14, Verizon Chief Executive Hans Vestberg stated at a Goldman Sachs financial conference that he anticipates consumer postpaid phone subscriber net additions to be damaging again in the September quarter. In the fourth quarter, he predicted Verizon might do better.
According to experts, Verizon may be in a difficult position as wireless rivalry between AT&T (T) and T-Mobile US (TMUS) intensifies. Verizon has prioritized average monthly subscriber revenue rather than pursuing subscriber market share.
Market Share Losses for VZ Stock
Recently, MoffettNathanson analyst Craig Moffett cut Verizon shares to underperform. According to him, Verizon has experienced market share declines every quarter since the second quarter of 2020, whether it be in total phones or postpaid phones.
Moffett said, “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,”
The remaining 1.4 million Verizon shares owned by Warren Buffett’s Berkshire Hathaway (BRKB) were sold off in the second quarter.
VZ stock’s June quarter results fell short of forecasts. The telecom firm reduced its forecast for EPS in 2022 for Verizon shares.
In contrast to expectations of 144,000 new postpaid wireless phone users, according to Verizon, just 12,000 were added.
Verizon added 275,000 postpaid wireless phone users over the same time last year.
According to research by Raymond James analyst Frank Louthan, Verizon’s problem is around its marketing and branding strategy. “For whatever reason, the network’s performance is insufficient to draw customers. The guidance suggests that management has given up and is resuming the knife battle for subscribers by spending more on promotions and customer retention for the remainder of 2022.”
VZ Stock: A Safe Move?
Concerns that the US economy may enter a recession led some investors to regard telecom equities as a defensive position. Verizon stock, a part of the Dow, yields a dividend of 4.8%.
VZ stock is in danger due to purchasing a mid-band radio spectrum for 5G wireless services. Verizon shares paid $53 billion in a government auction, which included clearing fees and incentive payments to satellite operators. The purchase of a mid-band spectrum for 5G services will delay the buyback of VZ shares.
VZ Stock paid Apollo Global Management $5 billion in May 2021 for a 90% interest in its media and advertising company.
A positive development was that Verizon ultimately completed the $6.25 billion acquisition of Tracfone from Mexico-based America Movil in November (AMX). Tracfone offers prepaid wireless services.
The predicted escalation of 5G cellular competition is one issue for Verizon shares. Cable TV companies are increasing the aggressive price of new promos.
T-Mobile Sprint’s acquisition by the US has strengthened its competition. A recent merger of AT&T’s WarnerMedia and Discovery businesses was also reached (DISCA). As a result, a smaller AT&T is anticipated to have more funds available to invest in fiber-optic services and 5G wireless technologies.
Mid-Band Spectrum Is Important For 5G Revenue Growth, Says Verizon
Given that Verizon currently has an adequate 5G mid-band spectrum, the network’s strength will be critical. Verizon intends to introduce 5G services based on the mid-band spectrum by the end of 2022, providing faster internet speeds to 175 million people.
Additionally, Verizon intends to provide fixed internet services to residences using the 5G mid-band spectrum. Cable TV providers currently dominate residential broadband. By 2023, the telco predicted that 30 million residents would access its fixed broadband service.
Verizon anticipates growth in 5G corporate services in 2022. Additionally, it is funding “mobile-edge computing” locations that offer exclusive 5G commercial services.
VZ Stock: Deals on Content
The New York City Walt Disney (DIS) and Verizon collaborate on video streaming services. Hulu and ESPN+ were added to Disney and Verizon’s streaming alliance in August. Additionally, Verizon has worked with sports leagues and Apple (AAPL) Music services.
Verizon joined Discovery (DISCA) as a video streaming partner in December 2020.
In a letter to clients, Raymond James analyst Frank Louthan stated, “We continue to believe Verizon’s streaming relationships with Disney, Discovery, the NFL, as well as game collaborations with Apple/Google are driving stronger sell-through of unlimited premium plans.”
Top Management New at VZ Stock
Because of low-interest rates since the global recession of 2008-2009, Verizon stock has had some great runs. The telecommunications behemoth temporarily joined the IBD Leaderboard. It is a hand-picked group of great stocks that outperform on both technical and fundamental metrics.
Compared to competitor telco AT&T, Verizon is far more exposed to the American wireless market. Nearly 85% of Verizon’s adjusted earnings come from its cellular division.
Since purchasing Vodafone Group’s (VOD) 45% ownership in a cellular joint venture for $130 billion in early 2014, the corporation has reduced debt.
Its top leadership is also new. Before joining Verizon, Hans Vestberg was CEO of network equipment manufacturer Ericsson (ERICY). In 2017, both Vestberg and Chief Strategy Officer Rima Qureshi, a former employee of Ericsson, joined Verizon.
Fundamentals Of VZ Stock In A Growing Sector
Revenue expansion is still a problem. The saturation of the American cellphone market is Verizon’s central issue. A lot of people have put off getting new smartphones. Additionally, data-hungry mobile video hasn’t proven to be a significant moneymaker.
The telecom behemoth’s earnings report for the second quarter and decreased outlook for this year caused VZ shares to decline.
Verizon reported $1.31 per share earnings, excluding adjustments, for the June quarter. Earnings increased by 3% to $33.8 billion, just missing forecasts.
Verizon made $1.37 per share on $34.77 billion in sales the year before. Analysts predicted Verizon would make $1.33 per share on a $33.77 billion in revenue.
Compared to analyst projections of $18.39 billion, Verizon’s Q2 cellular service revenue increased by 9% to $18.4 billion.
Verizon reduced its prior projection of $5.40 to $5.55 for adjusted EPS for the entire 2022 fiscal year to a range of $5.10 to $5.25.
In contrast to prior projections for adjusted EBITDA growth of 2% to 3%, the telco now anticipates growth of minus 1.5% to flat.
VZ Stock: Will 5G Wireless Save It?
The 5G mobile network from Verizon makes use of both low-band and high-frequency waves. Although its lower-band 5G services are generally accessible, they do not significantly outperform more dated 4G networks in terms of data throughput.
Verizon’s 5G “Ultrawideband,” or UWB, mobile services take advantage of the mm-Wave spectrum at high frequencies.
The cloud computing division of Amazon.com (AMZN), Amazon Web Services, and Verizon have teamed up to create 5G apps for web-enabled industrial equipment. IBM is a further associate (IBM).
Experts predict that 5G connectivity will play a part in cloud gaming, driverless vehicles, drones, and remote medical care.
Analysis of VZ Stock: Should You Buy It Now?
According to the IBD Stock Checkup, VZ stock has a Relative Strength Rating of 26 out of a maximum score of 99. An RS rating of 80 or above is often seen in the finest equities.
IBD Stock Checkup reports that Verizon stock has an IBD Composite Rating of 31 out of a maximum potential 99. IBD’s Composite Rating creates a single, simple rating by combining five different proprietary ratings. The Composite Rating of the top growth stocks is 90 or above.
The Accumulation/Distribution Rating for Verizon stock is E. This evaluation looks at price and volume movements in stock over the last 13 trading weeks. The ranking gauges institutional stock purchases and sales on a scale from A+ to E. E denotes actual selling, whereas A+ denotes heavy institutional buying. Consider a C as a neutral grade.
VZ stock has no possible entry point as of October 1. It must create a new foundation.
Investors can consider additional 5G equities, such as semiconductor or network equipment vendors.
Meanwhile, it may take years for new 5G wireless apps to make a sizable profit. Income-focused investors should consider a large ETF like SPY, which follows the S&P 500, rather than purchasing Verizon stock.
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