Verizon Stock Has Been A Laggard. Will The C-Band Deployment Change Things?
Verizon (NYSE:VZ), the largest U.S. wireless carrier in terms of subscribers, has seen its stock lag the broader market considerably in recent years. Over the last five years, Verizon stock is up a mere 1%, compared to the S&P 500, which has nearly doubled since 2017. The underperformance has largely been due to the company’s slower wireless subscriber growth and its apparently weaker 5G network rollout versus rival T-Mobile, and also due to a rising debt burden, as it funded spectrum purchases and its 5G buildout. However, we think there are a couple of factors that could drive the stock higher.
Firstly, Verizon is looking to boost its revenue growth. While sales grew at an annual rate of under 2% over the last decade, the company is looking to grow its revenue by about 3% over 2022 and 2023, with growth rates accelerating to 4% or more in 2024 and beyond. There are a couple of avenues for Verizon to drive growth. Firstly, Verizon’s 5G network is slated to get better, as the company rolls out its recently acquired C-band spectrum, which offers higher speeds, lower latency, and more capacity. Verizon is looking to cover 175 million people in the U.S. with these airwaves while expanding coverage to around 250 million people by the end of 2024. Verizon’s relative lack of mid-band spectrum versus T-Mobile was seen as a handicap for the company’s 5G network in the past and as more mid-band spectrum is rolled out, Verizon could win over more subscribers, while moving existing subscribers up to more premium 5G plans. Verizon is also pushing deeper into the value-end of the market, with its acquisition of Tracfone, the largest mobile virtual network operator (MVNO) in the U.S.
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Verizon’s cash flows are also expected to improve going forward, as revenues improve, and also as capital spending cools off after years of big network and spectrum investments. While the company is projecting capital expenditures of around $22.5 billion this year as it invests in rolling out the C-band spectrum, it notes that the number could fall to $19.5 billion in 2023, and to about $17 billion annually beyond that. Verizon is also likely to see over $1 billion in cost synergies from the Tracfone deal, as it migrates over 6 million Tracfone subscribers who are currently on other networks onto the Verizon network.
Verizon’s valuation also looks compelling. Despite the prospect of stronger revenue growth going forward, Verizon stock currently trades at just about 10x forward earnings, which is well below rival T-Mobile, which trades at over 50x, and also slightly below slower-growing Dish Network, which trades at 12x forward earnings. As interest rates continue to rise, investors could see more value in Verizon stock, with its strong earnings yields and a dividend yield of over 4.5%. We value VZ stock at about $63 per share, about 18% ahead of the current market price. See our analysis on Verizon Valuation : Expensive or Cheap for more details on Verizon’s valuation and how it compares to peers. Also see our analysis on Verizon Revenue: How Does Verizon Make Money.
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