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While VZ stock has consistently underperformed the S&P 500, the telecom giant often attracts income-oriented investors, thanks to its dividend. If 5G wireless services reignite earnings and revenue growth, Verizon stock might have much greater appeal.
Verizon Communications (VZ) reported Q4 earnings that fell from a year earlier but met Wall Street estimates. Wireless subscriber additions topped expectations amid a shake-up in the consumer business.
The wireless and landline phone company hosts an analyst briefing on Feb. 5. It’s expected to discuss operating performance, strategic priorities and financial goals.
Shares in Verizon were up 12% in 2024 as of the market open on Feb. 5. Verizon stock retreated 4% in 2023.
However, VZ stock clawed back from a 52-week low of 30.14 set on Oct. 6. The Nasdaq composite climbed 43% in 2023.
Management changes continue. Verizon in December hired a new chief marketing officer, Leslie Berland. She held the same position at Peloton Interactive (PTON). Verizon in early February hired Stacy Sharpe, a former Allstate executive, as executive vice president and chief communications officer.
Rising interest rates and Treasury bill yields have been a headwind for dividend paying stocks. But the Federal Reserve has signaled that its policy tightening campaign is over. Wall Street analysts project potential interest-rate cuts in 2024.
A Dow component, VZ stock pays a 7.4% dividend. A Verizon stock buyback has been delayed by purchases of radio spectrum needed for 5G services.
New York-based Verizon may be in a tough position as wireless industry growth slows amid competition with AT&T (T) and T-Mobile US (TMUS), analysts say. Cable TV companies continue to gain traction in wireless services.
The Verizon brand also has lost some oomph as the company fights to regain its marketing claim to operating the highest quality wireless network.
Amid management changes, the company is focusing on generating growth in service revenue, free cash flow and earnings before interest, taxes, depreciation and amortization.
It’s taking much longer than expected for 5G synergies to kick in.
Verizon’s consumer wireless business has yet to get a material revenue lift from 5G smartphone users. One bright spot is that Verizon in 2022 added 1.17 million fixed broadband subscribers in homes, up from about 400,000 in the previous year. But revenue from 5G business services using private networks has disappointed.
Verizon owns midband and high-frequency millimeter wave radio spectrum. Its 5G network now is available to 200 million people in the U.S.
Revenue growth remains an issue. Data-gobbling mobile video hasn’t panned out as a big moneymaker. Verizon has focused on upgrading consumers to unlimited data plans to boost average monthly revenue per user.
Verizon is ramping up 5G fixed broadband services to homes and businesses. Cable TV companies currently dominate in residential broadband. Verizon has stated that its fixed broadband service will reach 30 million homes by the end of 2023.
Verizon expects 5G business services using private network links to gain momentum in 2024. Also, it’s investing in “mobile-edge compute” sites.
Verizon has partnered with Amazon Web Services, the cloud computing arm of Amazon 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.
At a recent Morgan Stanley conference, Verizon said it plans to use artificial intelligence technology to improve customer service and lower operating expenses.
Much of Verizon’s top management has come from outside the telecom firm. Verizon CEO Vestberg held the same post 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.
In addition, Verizon on March 3 announced that Sowmyanarayan Sampath will become CEO of the Verizon Consumer Group. Sampath earlier led the Verizon Business Group. In December, Verizon let go Manon Brouillette, the head of the struggling consumer business.
Kyle Malady, the head of global networks and technology, was named CEO of Verizon Business Group.
Verizon chief marketing officer Diego Scotti in mid-May stepped down after nearly nine years in the role.
In a bright spot, Verizon in November finally closed the $6.25 billion acquisition of Tracfone from Mexico-based America Movil (AMX). Tracfone sells prepaid wireless services. If a recession hits, all U.S. wireless firms will step up marketing in the low end of the wireless market — prepaid customers.
Verizon’s efforts to diversify into internet content backfired.
Verizon in May 2021 sold a 90% stake in its media and advertising business to Apollo Global Management for $5 billion.
Content partnerships are key.
Verizon has partnered with Walt Disney (DIS) in video streaming services. Verizon also has partnered with Apple (AAPL) for music services and with sports leagues.
In Q4, Verizon earnings fell 9% to $1.08 on an adjusted basis. Revenue for Verizon stock dipped 0.3% to $35.1 billion.
A year earlier, Verizon earned $1.19 a share on revenue of $35.3 billion. Analysts had projected Verizon earnings of $1.08 a share on revenue of $34.6 billion for the quarter.
Wireless service revenue climbed 3.2% to $19.4 billion versus estimates of $19.37 billion.
Also, Verizon said it added 449,000 postpaid phone customers versus a 217,000 gain in the year-earlier period. Verizon’s subscriber figures include both consumer and business customers.
Analysts had predicted a Q4 gain of 224,000 postpaid phone subscribers — customers that spend the most monthly.
Also in Q4, Verizon added 375,000 5G broadband customers.
For 2024, Verizon forecast adjusted EPS in a range of $4.50 to $4.70. The EPS guidance was in line.
Verizon said it expects wireless service revenue growth in a range of 2% to 3.5%. In addition, it projected adjusted EBITDA growth in a range of 1% to 3%.
Verizon stock holds a Relative Strength Rating of 79 out of a best-possible 99, according to the IBD Stock Checkup. The best stocks tend to have RS ratings of 80 or better.
In addition, Verizon stock has an IBD Composite Rating of 76 out of 99. 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.
Meanwhile, Verizon stock holds an Accumulation/Distribution Rating of B. 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 Feb. 5, VZ stock holds an entry point of 38.88. Verizon stock is extended and trades well above a 5% buy zone.
Further, investors could take a look at other 5G stocks, such as chipmakers 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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