Buoyed by a holistic growth model, Verizon Communications Inc. VZ has gained 32% over the past year compared with the industry’s growth of 36.8%. Despite lagging peers like AT&T Inc. T and T-Mobile US Inc. TMUS, the stock appears poised to gain from customer-focused planning, disciplined engineering and steady infrastructure investments.
In addition, Verizon is likely to benefit from the deployment of a cloud-native, container-based, virtualized architecture for higher flexibility, scalability and cost efficiency across its network. The various mix-and-match pricing plans in both wireless and home broadband have further led to solid customer additions.
One-Year Price Performance
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VZ Riding on Wireless Broadband Momentum
Verizon is witnessing significant 5G adoption and fixed wireless broadband momentum with premium unlimited plans. The telecom giant plans to accelerate the availability of its 5G Ultra Wideband network across the country. The company’s growth strategy includes 5G mobility, nationwide broadband and mobile edge compute and business solutions.
The company’s 5G network hinges on three fundamental drivers to deliver the full potential of next-generation wireless technology. These are massive spectrum holdings, particularly in the millimeter-wave bands for faster data transfer, end-to-end deep fiber resources and the ability to deploy a large number of small cells.
Verizon recently partnered with Skylo Technologies to enhance connectivity for its customers by introducing a new satellite-based direct-to-device messaging service. Leveraging Skylo’s cutting-edge satellite technology will likely enable Verizon’s customers with compatible smartphones to use emergency messaging and location sharing outside traditional cellular coverage. The collaboration supports the development of satellite IoT technology, allowing the low-complexity and energy-efficient Verizon-enabled devices to seamlessly switch between terrestrial and satellite networks as needed.
VZ’s Fiber Focus Gaining Traction
Verizon has been aggressively forging ahead to expand its fiber optics networks to support 4G LTE and 5G wireless standards as well as wireline connections. The company remains focused on making necessary capital expenditures due to the continued expansion of 5G mmWave in new and existing markets, the densification of the 4G LTE wireless network to cater to huge traffic demands across multiple verticals and the continued deployment of the fiber infrastructure.
Earlier this month, Verizon entered into a definitive agreement to acquire Frontier Communications Parent, Inc. FYBR, the largest pure-play fiber provider in the United States. The deal, worth approximately $20 billion of enterprise value, is aimed at expanding Verizon’s fiber footprint across the nation, accelerating its delivery of premium mobility and broadband services to current and new customers.
Post-acquisition, Verizon will integrate Frontier’s state-of-the-art fiber network within its Fios network to boost its industry-leading portfolio of fiber and wireless assets. Additionally, the combination of Frontier’s premium broadband with Verizon’s premium mobile offering is anticipated to improve the customer churn rate by approximately 50% for postpaid mobility. This, in turn, is expected to boost the revenues of the mobility division. Verizon further expects to achieve a minimum of $500 million in run-rate cost synergies by the third year, backed by the increased scale, distribution and network integration.
VZ Weighed Down by Margin Pressure
Despite solid wireless traction, Verizon is facing a steady decline in legacy services. The company’s wireline division is struggling with persistent losses in access lines as a result of competitive pressure from voice-over-Internet protocol service providers and aggressive triple-play (voice, data, video) offerings by the cable companies. Moreover, to expand its customer base, Verizon is spending heavily on promotion and is offering lucrative discounts, which are weighing on margins.
VZ also recorded high capital expenditures to support the launch and continued build-out of its 5G Ultra Wideband network, deployment of significant fiber assets across the country and upgrade to Intelligent Edge Network architecture. The company has splurged in the C-Band auction that is offering airwaves in the 3.7 gigahertz-to-4.2 gigahertz area of spectrum to acquire key mid-band spectrum for potential 5G deployments in the next few years. Unless the high auctioning expenses are justified, margins are likely to be compromised significantly.
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Eroding Legacy Services Dent VZ
Verizon registered 65,000 Fios Video net losses in second-quarter 2024, reflecting the ongoing shift from traditional linear video to over-the-top offerings. For 2024, the company has offered muted guidance and expects wireless service revenues to grow in the range of 2-3.5%.
The company operates in a competitive and almost saturated U.S. wireless market. Spectrum crunch has become a major issue in the U.S. telecom industry. Most carriers are finding it increasingly challenging to manage mobile data traffic, which is growing by leaps and bounds. The situation has become even more acute with the growing popularity of iPhone and Android smartphones as well as rising online mobile video streaming, cloud computing and video conferencing services.
Estimate Revision Trend of VZ
Earnings estimates for Verizon for 2024 have moved down 3.8% to $4.58 over the past year, while the same for 2025 has declined 5.1% to $4.68. The negative estimate revision depicts bearish sentiments for the stock.
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End Note
By investing steadily in infrastructure and pioneering new technologies, Verizon is well-positioned to bridge the digital divide and enhance the connectivity landscape nationwide. This is likely to translate into solid subscriber growth, higher average revenue per user and increased broadband and fiber penetration.
However, a saturated wireless market and price wars owing to competitive pressure have eroded its profitability. The downtrend in estimate revisions further portrays skepticism about the stock’s growth potential. With a Zacks Rank #3 (Hold), Verizon appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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