Verizon's Guidance Surprise - Analysts Boost Forecast

Keybanc analyst Brandon Nispel maintained Verizon Communications Inc VZ with an Overweight and raised the price target from $45 to $46.

The analyst said that the fourth quarter results were mixed, with wireless service revenue of +3.2% below his consensus of +3.5% on lower ARPU offset by higher postpaid phone net adds. 

The adjusted EBITDA growth of -0.6% missed estimates, driven by VCG, though it aligned with Nispel’s estimates.

The analyst noted that free cash flow was ahead due to a lower-than-expected capex. 

Also, 2024 guidance generally came in line, highlighting accelerating service revenue, accelerating adjusted EBITDA growth, and messaging for VCG to return to positive postpaid phone net adds, all of which he found encouraging. 

Also Read: Why Is Telecom Giant AT&T Stock Down Today?

Nispel noted a stable Wireless competitive environment, improving Verizon postpaid phone net adds, strong VCG broadband net adds, and Verizon’s high-quality cash flow can drive shares.

Oppenheimer analyst Timothy Horan had an Outperform rating on the stock and raised the price target from $43 to $48.

The analyst noted that Verizon exited 2023 with strong momentum from significant upgrades to its network, management, and go-to-market. These factors are driving better ARPUs, subscriber growth, and strong Free Cash Flow. 

Horan said it has stabilized its Consumer base, which should return to positive net adds in 2024. Its wireline Business is in decline, but it is clear Verizon favors FCF here. 

The analyst added that Verizon focuses on growing wireless service revenue through pricing action, myPlan ARPUs, and converged FWA. Normalizing CapEx is a ~$1.5 billion FCF tailwind but could be offset by higher device upgrades and cash taxes.

Overall, he noted Verizon was better positioned than two years ago and considered the results positive for AT&T Inc T, neutral to T-Mobile US, Inc TMUS. 

Raymond James analyst Frank G. Louthan reiterated an Outperform rating with a price target of $46. 

He noted that the name remains defensive and has a compelling total return story for investors.

One surprise the Street got was the guide for positive postpaid phones for FY24, per the analyst.

Louthan emphasized two critical factors for these stocks: wireless post-pay phone growth and EPS growth. The outlook for subscriber growth had been more damaging, he said.

Morgan Stanley analyst Simon Flannery had an Overweight rating with a price target of $44.

The analyst flagged Verizon’s significant beat on postpaid phone adds of 449k, with the outlook for positive consumer postpaid phone net adds in fiscal 2024. 

He noted that wireless service revenue was up year-on-year, with positive commentary on fiscal first-quarter pricing actions. 

The analyst also pointed that broadband adds will likely continue above 400k per quarter. 

Flannery flagged that expected deleveraging in fiscal 2024, driven by lower capex and a bit of EBITDA growth, may be met with increased shareholder returns in fiscal 2025. 

Price action: VZ shares closed lower by 2.25% at $41.28 on Wednesday.

Also Read: Verizon Q4 Shows Consumer Turnaround Continues – BofA Analyst Eyes Wireless Growth in 2024 Financial Forecast

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