Verizon stock forecast: is Verizon a good stock to buy?
Verizon reports solid third-quarter results, but what does this mean for the Verizon stock forecast?
- Third-quarter results
- CEO response
- Updated forecast
- Market response
- Dividend increase
- Network-first strategy
- Mobile data plans
- Expert Opinion
Verizon’s third quarter results, published on Wednesday, may well signal the beginning of exciting growth for the company, despite it underperforming the market significantly since the beginning of the year, .
Its continued investment in 5G technologies over the past few years has placed the telecom giant in prime position to capitalise on the 5G wave, with demand for 5G services soaring since the pandemic, from cloud-gaming, to robotics, to mobile plans for retail and business customers.
What are the results and how will they impact a Verizon share price forecast?
The telecom firm added 429,000 post-paid phone subscribers during the third quarter, a 51.6% increase compared to Q3 2020, topping FactSet estimates of 302,300.
129,000 broadband customers also signed up to take advantage of Verizon’s offerings. Total wireless service revenue grew by 3.9% year- on-year, to $17.1bn. Wireless revenues from business segment were $3.1bn, a 3.6% increase from last year. The returns offset a decline in business revenues overall, down 0.8% since Q3 2020, due to a fall in wireline demand among busines customers.
Verizon saw earnings per share rise to $1.55 compared with $1.05 in the third quarter of 2020, up by almost half compared to Q3. This, the company's report highlighted, included profits from Apollo’s recent 90% acquisition of Verizon media.
Operating revenue was up 4.3% year-on-year to $32.9bn.
The conglomerate has failed to make a dent in its unsecured debt balance of $141.6bn, a marked increase of $36.1bn since Q3 2020.
Verizon's chairman and CEO, Hans Vestberg, said: "We had a strong third quarter, delivering on our strategy and growing in multiple areas, our disciplined strategy execution demonstrated growth in 5G adoption, broadband subscribers and business applications.”
Chief financial officer Matt Ellis said: “Verizon reported another quarter of strong financial and operating performance. We are seeing strong demand for connectivity across our consumer and business segments as our Mix and Match and Business Unlimited value propositions, network quality and unique partnerships are resonating with both new and existing customers."
The telecom company updated financial guidance for the full year of 2021, predicting wireless service revenue would grow 4%, up to the highest end of the previous forecast of 3.5% to 4%.
Additionally, Verizon updated expectations around adjusted EPS from $5.35 to $5.40, an increase from $5.25 to $5.35.
While the results certainly seem promising how have the markets responded and how will this impact a Verizon stock price predictions?
Over the last year, the telecom giant has continued to underperform in the market, dropping from $58.85 at the beginning of January to lows of $51.33 on Tuesday 12 October. This underperformance can in part be ascribed to the fact the pandemic did not hit telecom firms as badly as other industries, meaning in turn improved performance this year has been less stark.
High debt levels combined with fierce competition from AT&T and T-Mobile have also dampened recent Verizon stock performance.
The market, however, has responded warmly to the Q3 reports., with initial rises in the stock price
Clear uptake of 5G supported devices in the US, and continued success of Verizon’s 5G roll-out scheme have no doubt contributed to this optimism.
The question is whether Verizon stock price will continue rallying, or whether it will rebound again.
Recent announcements that the US conglomerate would increase dividends for the 15th consecutive year will no doubt be received well by investors.
On 2 October, the Board of Directors announced a quarterly dividend of 64 cents per outstanding share an increase of 1.25 cents compared to the second quarter of 2021.
In response to the announcement, Vestberg said “We continue to deliver value to our shareholders as we execute our multi-purpose network strategy and grow the top and bottom lines.”
With consistent dividends and marked underperformance, Verizon has become a defensive player, attracting income-oriented investors rather than those with an appetite for growth.
Could activities in the 5G space spark revenue and earnings growth, changing the trajectory of the utilities firm?
Let’s look at factors which may impact a Verizon stock forecast...
Back in late September, Vestberg, during a remote Wall Street conference defined future growth for the telecom company in terms of “five vectors of growth”. These included retail and business 5G adoption, new products like fixed-wireless access broadband, and network monetization of the 5G network.
Verizon has spent $53bn purchasing C-band wireless spectrum licences, which, according to experts, is well suited to 5G services. With plans to construct 14,000 mm wave base stations and as many as 8,000 C-band stations by the end of 2021, it is clear the company is going full speed ahead in terms of capital investing on 5G equipment.
Discussing the telecom company’s continued 5G strategy in the Q3 report, Vestberg said: “We continue to expand our 4G LTE and 5G network leadership. We fully expect to have a strong finish to the year as we accelerate deployment of 5G to our customers across the country."
While Verizon appears to be going someway to reaching their target of supplying 5G services to 15 million homes across the US by the end of the year, analysts will no doubt be keen to see if the firm follows through on this.
Mobile data plans
Mobile users will have to switch to unlimited or premium post-paid contracts in order to avail of the wider bandwidth which 5G provides.
The more customers who switch to monthly contracts, the more beneficial for the firm, which already lags its competitors in this area. Switching customers to higher priced 5G plans also increases revenue over the longer term. This in turn would impact a VZ stock forecast favourably.
Through selling Verizon Media to Apollo, Verizon is streamlining its focus to become a pure telecom provider. This in turn can help it focus on pooling its resources on expanding key areas of the business.
Out of 25 analysts polled, the most optimistic of the bunch estimate a 12-month price target of $68, an increase of 29.9% compared current price. The low end for Verizon stock comes in at $52, a decrease of 0.7%. The median estimate represents a 14.6% increase from current price to $60.
From a consensus recommendation by the FT, two experts have put a buy recommendation, 6 analysts believe Verizon will outperform the market, 21 advise a hold, 1 believe it will underperform the market and 0 have put a sell rating.
While some analysts perceive Verizon to be a good stock to buy, growth in the long-term rests on substantial returns from its investments in the 5G space. Substantial returns will depend on outperforming its competitors and continued momentum in driving innovation and growth in the 5G space.
As with any investment, stocks can go up or down so it is important to do your own research.
While it is difficult to forecast so far in the future, FT analyst forecasts are certainly optimistic.
If the telecom giant can chip away at its debt, outperform its competitors in the 5G space and drive up post-paid mobile and broadband subscribers, revenue will in turn grow.
This, in turn, would impact Verizon share price favourably over the long-term, transforming Verizon from a defensive to a high growth player in the market.
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