While VZ stock has consistently underperformed the S&P 500, Verizon stock often attracts income-oriented investors. If 5G wireless services reignite earnings and revenue growth, however, VZ stock might have much greater appeal.
Problem is, Verizon Communications (VZ) needs more radio spectrum to ramp up consumer and enterprise 5G wireless services. Verizon stock pulled back recently on worries over how much it’s spending in a government auction of 5G wireless airwaves.
Verizon’s challenge is regaining an edge in network performance as 5G wireless applications emerge.
JPMorgan recently upgraded VZ stock on new revenue sources developing in 2021, with more impact in 2022.
At a virtual analysts meeting on Nov. 11, Verizon touted upside from Apple (AAPL)’s launch of new iPhones that connect to 5G wireless networks.
In the U.S., all four 5G iPhones utilize lower-band as well as high frequency, “mmWave” radio spectrum. Support for high-performance mmWave airwaves is a plus for Verizon. Verizon expects more subscribers to upgrade to premium unlimited data plans if they buy 5G iPhones.
VZ Stock: Apple 5G Launch, Spectrum Auction Key
When Verizon reported September quarter earnings, the telecom said it expects full-year adjusted per-share earnings growth in a range of zero to 2% vs. earlier guidance of -2% to 2%. It forecast wireless service revenue growth of at least 2% in the December quarter based on wireless subscribers upgrading to unlimited data plans.
However, Verizon has delayed a stock buyback as it conserved cash for a government auction of 5G wireless spectrum auction.
Verizon holds less debt than AT&T, which acquired media giant Time Warner and earlier satellite TV broadcaster DirecTV. While Verizon has avoided large acquisitions, its foray into the media business through the AOL and Yahoo acquisitions misfired. In 2018, it took a $4.6 billion write-down on its media business, called Oath.
Meanwhile, T-Mobile US‘ (TMUS) acquisition of Sprint closed April 1. The merger creates a stronger rival to Verizon and AT&T, due to T-Mobile’s spectrum holdings for 5G wireless services.
Verizon 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 the largest provider of wireless services in the U.S. It also sells wired services to consumers in the Northeast and business services globally.
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. One Verizon stock catalyst could be the return of a share buyback program. First, its credit rating needs to improve.
Further, its senior leadership is new. Chief Executive Hans Vestberg served as network gear maker Ericsson‘s (ERICY) CEO before joining Verizon. Vestberg and Chief Strategy Officer Rima Qureshi, also an Ericsson veteran, both joined Verizon in 2017.
Ronan Dunne, head of Verizon’s consumer business, previously was CEO at British wireless firm O2. He joined Verizon in 2016.
Meanwhile, Vestberg has embarked on a $10 billion cost-cutting effort through 2021.
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.
In the September quarter, Verizon earnings excluding special items came in at $1.25 an adjusted share. Earnings included about negative 5 cents of coronavirus-related net impacts.
Revenue fell 4.1% to $31.5 billion.
Analysts had projected Verizon earnings of $1.22 a share on revenue of $31.59 billion.
Media revenue fell 7.4% to $1.7 billion. Wireless revenue rose a fraction to $16.4 billion. The coronavirus pandemic has curtailed business and consumer travel, lowering roaming revenue.
Further, Verizon said it added 283,000 postpaid wireless phone subscribers vs. analyst estimates of a 260,000 gain. In the year earlier period, Verizon added 444,000 postpaid wireless phone customers.
Consumer unit revenue fell 4.3% to $21.7 billion vs. consensus estimates of $21.97 billion. Business unit revenue slipped 1.7% to $7.7 billion vs. estimates of $7.63 billion.
The company’s 5G build-out could reignite earnings and revenue growth, say Verizon stock bulls.
Verizon Stock: 5G Wireless To The Rescue?
But incremental revenue from 5G mobile services will be “scarce,” Raymond James analyst Frank Louthan said in a recent report. Verizon doesn’t plan to charge consumers extra for 5G services. Instead, it aims to upgrade customers to premium unlimited data plans.
Currently, 61% of consumer subscribers have unlimited data plans, up from 40% in 2018. About 17% of consumer subscribers have higher-cost, premium unlimited data plans, up from 4% in 2018.
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. UWB services will be available in parts of 60 cities, including sports stadiums, by the end of 2020. But coverage is spotty even in urban areas, analysts say.
As of now, “MmWave spectrum only covers a miniscule fraction of the country,” Craig Moffett, analyst at MoffettNathanson, said in a recent report to clients. He added: “A Verizon 5G customer will likely find themselves enjoying the blazing fast speeds of mmWave 5G 1% of the time or less.”
Wireless Partnerships Expand
New York-based Verizon last year 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 Music services and with sports leagues.
In December, Verizon added Discovery (DISCA) as a video streaming partner.
Verizon has expanded 5G broadband services to homes into 12 cities. However, Verizon does not expect meaningful revenue from 5G wireless broadband services to homes until 2021. It plans to reach 30 million U.S. homes with 5G broadband within five to eight years.
Verizon has told analysts that it expects 5G business services to gain momentum in 2022. It’s investing in “mobile-edge compute” sites that provide private 5G business services.
Pundits expect 5G wireless to have a role in manufacturing automation, cloud gaming, autonomous vehicles, drones and remote health care services. But emerging 5G wireless apps could take years to develop.
VZ Stock Analysis: Is It A Buy Right Now?
Verizon stock, meanwhile, has an Accumulation/Distribution Rating of C-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 Jan. 4, Verizon stock traded well below an entry point of 62.32. Shares pulled back in December amid a government auction of 5G airwaves.
Near-term catalysts may be lacking until it reports fourth-quarter earnings in January or auction results are known.
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.
YOU MAY ALSO LIKE: