Wireless behemoth Verizon has seen its stock rise by about 8% year-to-date in 2024 while recovering by about 34% from lows seen in mid-2023. The company recently posted a better-than-expected set of Q4 2023 results. Earnings for the quarter came in at $1.08, in line with expectations. Revenue stood at $35.1 billion, about 0.6% lower versus last year, although the number was ahead of estimates. Verizon also appears to be getting its act together on the 5G front. Verizon had a handicap in 5G mid-band spectrum, which offers both wide coverage and high speeds, compared to T-Mobile. The company saw three consecutive quarters of declines in postpaid phone subscriptions in its consumer division last year. However, Verizon has been acquiring and deploying new C-band spectrum to address these gaps and this appears to be showing in the company’s numbers as well. Over Q4 2023, Verizon added 449,000 postpaid phone customers, compared to 217,000 for Q4 2022.
Verizon is also gaining ground in the fixed wireless broadband segment, which is finding favor with U.S. customers, due to flexibility and low costs. In the previous quarter, Verizon added 375,000 fixed wireless broadband connections, taking its total subscriber base up to over 3 million users. This is also helping the company drive subscriber growth. Verizon also introduced the myPlan program, which enables wireless consumers to add a la carte features including video streaming subscriptions to mobile phone plans. These features are finding favor with customers and could help drive per-user revenues and margins.
Looking at a slightly longer period, VZ stock has suffered a sharp decline of 35% from levels of $60 in early January 2021 to around $40 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. Notably, VZ stock has underperformed the broader market in each of the last 3 years. Returns for the stock were -12% in 2021, -24% in 2022, and -4% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that VZ underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Communication Services sector including GOOG, META, and NFLX, and even for the mega-cap stars TSLA, MSFT, and AMZN. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could VZ face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?
We remain marginally positive on Verizon stock, with a $43 price estimate which is about 5% ahead of the current market price. The stock trades at just about 9x consensus 2024 earnings, which is reasonable in our view. Verizon also has a thick forward dividend yield of over 6%. Although we don’t see big revenue upside, we believe that the company’s growing 5G coverage should help it win over more subscribers and up-sell superior plans to its massive retail wireless base of over 120 million subscribers. See our analysis on Verizon Valuation: Expensive or Cheap for more details on Verizon’s valuation and how it compares to peers.
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