Although Verizon stock has persistently lagged the S&P 500, the telecoms company’s dividend frequently draws in investors who are focused on income. On the other hand, if earnings and revenue growth start to pick up again thanks to 5G cellular services, Verizon stock could have a lot more appeal.
Verizon Communications Inc (NYSE:VZ) is currently trading at a low valuation that has not been seen since 2017. The decline for VZ in 2022 was over 23 percent. The S&P 500 index has likewise declined by almost 23%. On Friday, October 21, investors in VZ stock may expect to see their results report for the third quarter.
In the midst of the rollout of 5G networks, Verizon Communications Inc is in the midst of a vigorous marketing competition. In addition, Apple (AAPL) has just released their brand new iPhone 14, which comes in at 14 megapixels. In response, wireless service providers introduced new sales and discounts.
Analysts believe that Verizon may be in a precarious situation as a result of the intensifying rivalry in the wireless market between AT&T (T) and T-Mobile US (TMUS). Verizon Communications Inc’s primary focus has been on increasing the average monthly revenue per subscriber rather than expanding its subscriber base.
Verizon Stock: Market Share Losses
MoffettNathanson analyst Craig Moffett recently downgraded Verizon stock to underperform. “Whether total phones or postpaid phones, Verizon Communications Inc has lost market share in every quarter since the second quarter of 2020,” he claimed (whether total phones or postpaid phones).
“Verizon Communications Inc has done its best to avoid being dragged into AT&T’s promotional quagmire, but their efforts have met with limited success,” Moffett observed. “Verizon has done everything possible to avoid being dragged into AT&T’s promotional abyss.”
During the same time period, Berkshire Hathaway (BRKB), which Warren Buffett owns, sold the remaining 1.4 million shares of Verizon stock it held during the second quarter.
Verizon stock’s results for the quarter ending in June fell short of analysts’ expectations. The telecommunications corporation decreased its earnings per share guidance for the year 2022 for Verizon Communications Inc shares.
Verizon Communications Inc reported that it only added 12,000 postpaid wireless phone subscribers in the second quarter, although analysts expected the company to add 144,000.
Verizon added 275,000 postpaid wireless phone users during the same time period the previous year.
According to an analyst from Raymond James named Frank Louthan, “Verizon’s difficulty is around the marketing and branding image,” and this was stated in a report. “Whatever the case may be, the quality of the network is not sufficient to entice customers to enter the store. The management has conceded defeat, and the guide gives the impression that they will get back into the fray for subscribers by increasing their spending on promotion and retention activities through the rest of 2022.”
Verizon Stock A Defensive Play?
When there was concern that a recession would affect the economy of the United States, investing in telecom companies was seen as a prudent defensive move. A Dow component, Verizon stock yields a 4.8% dividend.
Mid-band radio spectrum is an overhang for Verizon stock because the company purchased it for use in 5G wireless services. The Verizon shares’ government auction resulted in expenditures totaling $53 billion. These expenditures included incentive payments to satellite operators and clearing expenses. The buyback of VZ stock will be put on hold while the company acquires mid-band spectrum for 5G services.
In May 2021, Verizon stock sold a 90% stake in its media and advertising business to Apollo Global Management for $5 billion.
One positive note is that Verizon Communications Inc eventually finalized its purchase of Tracfone from Mexico-based America Movil in November, bringing the total purchase price to $6.25 billion (AMX). Tracfone is a provider of pre-paid services for mobile phones.
One of the challenges facing Verizon stock is the fact that the 5G cellular competition is anticipated to intensify. The companies that provide cable TV are stepping up their game with more promos and more competitive pricing.
T-Mobile, The merger between US and Sprint resulted in the formation of a more formidable competitor. In addition, AT&T also recently reached an agreement with Discovery to combine its WarnerMedia and Discovery businesses (DISCA). Because of this, it is anticipated that an AT&T with fewer operations will have more capital available for investments in 5G wireless technology and fiber-optic services.
Mid-Band Spectrum Is Crucial To The Growth Of 5G Revenue, According To Verizon Stock
Now that Verizon possesses a sufficient amount of 5G mid-band spectrum, the expansion of its network will be of critical importance. Midband spectrum-based 5G services offered by Verizon Communications Inc that offer increased data transfer rates are expected to be rolled out to 175 million customers by the end of 2022.
Additionally, Verizon intends to utilize the 5G mid-band spectrum to provide fixed internet services to residential customers’ homes. The cable television industry currently holds a dominant position in the residential broadband market. The telecommunications company has projected that its fixed broadband service will be available in 30 million additional homes by the end of 2023.
In 2022, according to Verizon Communications Inc’s projections, 5G corporate services will begin to gain traction. In addition to that, investments are being made in “mobile-edge compute” facilities, which are locations that offer private 5G corporate services.
Verizon Stock: Content Deals
Location in New York In video streaming services, Verizon Communications Inc and Walt Disney (DIS) have formed a partnership. In August, Disney and Verizon Communications Inc extended their collaboration in the streaming media industry to include Hulu and ESPN+. Additionally, Verizon Communications Inc has formed partnerships with sports organizations and Apple (AAPL) Music services.
A video streaming partnership between Verizon Communications Inc and Discovery (DISCA) was announced in December 2020.
Raymond James analyst Frank Louthan stated to clients in a note that “We continue to believe Verizon’s streaming partnerships with Disney, Discovery, and NFL, as well as gaming partnerships with Apple/Google, are driving higher sell-through of unlimited premium plans.” Louthan stated about Verizon’s gaming and streaming partnerships with Apple and Google.
Verizon Stock: Top Management New
Verizon stock has performed admirably since the start of the global recession in 2008-2009, owing in large part to historically low-interest rates. The massive telecommunications company briefly climbed the IBD Leaderboard. It is a compiled list of top stocks that stand out in terms of both fundamentals and technical metrics.
AT&T, Verizon’s competitor, has significantly less of a presence in the U.S. wireless industry than Verizon does. Wireless operations contribute close to 85 percent of Verizon’s earnings after adjusting for tax.
Since it acquired Vodafone Group’s (VOD) 45% ownership in a wireless joint venture for $130 billion in early 2014, the company has made payments toward the reduction of its debt.
In addition to that, its top leadership is brand new. Prior to joining Verizon Communications Inc, Hans Vestberg was the chief executive officer of the networking equipment manufacturer Ericsson (ERICY). Both Vestberg and Verizon Communications Inc’s Chief Strategy Officer Rima Qureshi, who had previously worked for Ericsson, joined the company in 2017.
The Fundamentals of Verizon Stock in a Developing Industry
The problem of declining revenue continues. The oversaturation of the wireless market in the United States is a long-term challenge for Verizon Communications Inc. A significant number of customers have put off upgrading to more recent cell phones. In addition, mobile video, which consumes a lot of bandwidth, has not proven to be a lucrative business venture.
The stock of Verizon Communications Inc was negatively affected after the telecom giant revealed its earnings for the second quarter and decreased its estimates for the remainder of this year.
When things are taken into account, Verizon Communications Inc’s earnings per share for the June quarter came in at $1.31. The revenue increased by 3%, coming in at $33.8 billion, just missing analysts’ projections.
When compared to the previous year’s results, Verizon Communications Inc’s earnings were $1.37 per share on revenue of $34.77 billion. Earnings of $1.33 per share on revenue of $33.77 billion were what industry analysts had anticipated Verizon Communications Inc to achieve.
According to the earnings report released by Verizon Communications Inc, the company’s wireless service revenue increased by 9% to $18.4 billion in the second quarter, compared to analyst projections of $18.39 billion.
Verizon Communications Inc now anticipates that its adjusted earnings per share for the full year of 2022 would fall somewhere in the range of $5.10 to $5.25, which is a down from its previous projection of $5.40 to $5.55.
In contrast to its previous projection, which called for adjusted EBITDA growth of 2% to 3%, the telecommunications company now anticipates adjusted EBITDA growth of -1.5% to flat.
The Future of Verizon Stock: Will 5G Wireless Save It?
Both lower-band and high-frequency airwaves are utilized by the 5G mobile network offered by Verizon Communications Inc. Although its lower-band 5G services are widely available, they do not provide a significant increase in data throughput when compared to more established 4G networks.
The 5G “Ultrawideband,” or UWB, mobile services offered by Verizon Communications Inc take advantage of the high frequency, millimeter wave spectrum.
Amazon Web Services is Amazon.com’s cloud computing division (AMZN). Verizon Communications Inc has partnered with Amazon Web Services to develop 5G applications for web-connected industrial devices. This venture also includes IBM as a partner (IBM).
Experts believe that 5G wireless will play an important part in the automation of production, as well as in cloud gaming, driverless vehicles, drones, and remote medical services.
An Analysis of the VZ Stock: Should You Buy Right Now?
According to the findings of the IBD Stock Checkup, VZ stock has earned a Relative Strength Rating of 30 out of a maximum potential 99 points. The RS rating of 80 or higher is typically associated with the finest stocks.
According to the data presented by IBD Stock Checkup, Verizon stock presently possesses an IBD Composite Rating of 34 out of a maximum possible 99 points. IBD’s Composite Rating is an easy-to-use rating that combines five different proprietary ratings into a single rating. A Composite Rating of 90 or higher is typical of high-quality growth companies.
On the other hand, an Accumulation/Distribution Rating of E has been assigned to Verizon Communications Inc shares. This rating takes into account the price and volume fluctuations that have occurred in stock during the course of the most recent 13 weeks of trade. The grade uses a scale that goes from A+ to E to measure the purchasing and selling activity of institutional investors in the stock. A+ indicates heavy buying from institutions, while an E indicates heavy selling. Consider the grade of C to be an average.
As of September 26, there is no acceptable entry point for VZ stock. It is necessary to construct a new foundation.
Investors can also consider other equities related to 5G, such as those held by manufacturers of network gear or chip makers.
Meanwhile, it may take several years for the development of 5G wireless applications to generate significant revenue. Rather than Verizon stock, investors seeking income may be better served by purchasing a major exchange-traded fund (ETF) such as SPY, which tracks the S&P 500.
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Author Valerie Remorosa