Verizon's 5G Expansion And Fiber Goals Boost Long-Term Outlook, Analysts Cautiously Optimistic

Verizon Communications Inc VZ stock rebounded Wednesday after a selloff following the third-quarter print Tuesday, also getting a boost from AT&T Inc’s T quarterly print.

The sales growth was flat year-over-year, reaching $33.33 billion, marginally missing the analyst estimate of $33.43 billion. Declines in wireless equipment revenue offset the company’s Service and other revenue growth.

Also Read: AT&T Q3 Earnings: Strong Postpaid Phone Adds, Adj. EBITDA Growth, $4.4B Impairment Charge And More

Analysts rerated Verizon after its quarterly print. BofA Securities analyst David W. Barden maintained a Neutral rating with a price target of $45.

RBC Capital analyst Jonathan Atkin maintained a Sector Perform with a price target of $46. Scotiabank analyst Maher Yaghi reiterated a Sector Perform rating with a price target of $47.00, down from $47.25.

BofA Securities: Verizon’s solid third-quarter results position the company to meet or exceed the midpoint of its service revenue and adjusted EBITDA growth guidance, although shares have declined, Barden noted.

According to the analyst, investors are likely reacting to Verizon’s 2025 capital expenditure guidance of $17.5 billion-$18.5 billion, which suggests potential free cash flow challenges. He said that the company discussed priorities such as fixed wireless access (FWA), fiber to the home (FTTH), convergence, and capital allocation at a recent event.

Verizon raised its FWA subscriber target to 8-9 million by 2028, driven by C-band deployment in suburban and rural areas and the use of mmWave spectrum to target multi-tenant dwellings.

Verizon aims to pass 30 million homes with fiber by 2028, including Frontier’s current passings, and eventually grow this to 35-40 million. The company highlighted that consumer-led convergence can drive revenue and margins through reduced churn and cross-selling opportunities.

Verizon outlined capital allocation priorities, focusing on investing in the business, growing the dividend, and improving the balance sheet. It also increased its leverage target to 2-2.25 times and will consider buybacks at or below this level.

Barden noted that Verizon has leveraged its premium network to build a premium-value subscriber base. According to the analyst, Verizon’s long-term strategy is to use its network as a service model as the foundation for the emerging 5G economy. In the near term, it faces competitive pressure that will likely increase promotional spending and impact margins as it awaits the 5G economy to take off.

RBC Capital: Verizon’s third-quarter revenue reached $33.3 billion, flat Y/Y and slightly below expectations due to weaker wireless equipment sales caused by fewer handset upgrades. Adjusted EBITDA rose 2.1% Y/Y to $12.5 billion, surpassing estimates by 0.6%, while adjusted EPS of $1.19 came in slightly ahead, beating by $0.01.

Free cash flow was $6.0 billion, exceeding expectations due to the timing of capital expenditures, while operating cash flow was impacted by cash taxes and non-recurring charges. Capital expenditures for the quarter were $3.9 billion, lower than anticipated.

The rerating reflects Verizon’s network position and concrete dividend yield, offset by potentially increasing competitive intensity in the wireless business. Atkin noted that the company’s underlying wireless subscriber momentum and service revenue trajectory are enhancing and should benefit further from differentiated promotions.

The potential for expanded promotional activity as carriers and cable Mobile Virtual Network Operators (MVNOs) compete for share in a saturated market and the concomitant impact on wireless margins, along with the company’s reliance on wireless service revenue growth through price increases, keeping him on the sidelines.

Scotiabank: Verizon’s third-quarter results aligned with Yaghi’s expectations and the consensus. Total revenue reached $33.3 billion, flat Y/Y, compared to the analyst’s estimate of $33.6 billion and the consensus of $33.4 billion.

Lower handset upgrades pressured wireless equipment revenues and offset wireless service revenue growth. Adjusted EBITDA came in at $12.5 billion, in line with his and consensus estimates of $12.4 billion. Growth was supported by wireless gains and lower handset upgrade rates, as the new iPhone has yet to spark a noticeable increase in upgrades.

While consumer postpaid phone net adds turned positive at +81K (~60K from second lines), management must show sustained recovery over the next few quarters, especially without the boost from second lines seen in the second and third quarter. The increase in fiscal 2025 capex guidance by $750 million came as a surprise, indicating that free cash flow (FCF), while healthy, may not see growth next year.

Yaghi noted Verizon’s past investments provide the company with avenues to improve growth, including its 5G services, C-band acquisition and deployment, TracFone acquisition, wholesale MVNO access, etc. The analyst noted Verizon’s nationwide broadband coverage is still in the early innings. FTTH coverage is extensive enough to offset non-Fios losses to cable, as per the analyst.

However, the integration of TracFone is causing leakage on the prepaid side for a few more quarters and, combined with a weaker positioning in consumer postpaid offerings (due to the company’s decision not to join the fray to subsidize handsets heavily), is forcing pressure on its revenue outlook, Yaghi added.

Price action: VZ stock is up 2.66% at $42.61 at the last check on Wednesday.

Photo: JHVEPhoto/Shutterstock.com

Also Read:

• Verizon’s Positive Pricing Strategy Supports Future Growth, Broadband Growth to Rely on Fiber and Fixed Wireless: Analyst