Will Verizon’s Q1 Results Boost Its Undervalued Stock?

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Verizon (NYSE:VZ) the largest U.S. wireless carrier in terms of subscribers, is slated to report its Q1 2022 results on Friday, April 22. We estimate that Verizon’s revenue will come in at about $33.8  billion for the quarter, rising by about 2.5% versus last year and slightly ahead of consensus estimates. We project that earnings will stand at close to $1.36 per share, in line with consensus estimates, although this would mark an increase from $1.27 per share seen in Q1 2021. So what are some of the trends that are likely to drive Verizon’s results?

We expect Verizon’s quarterly revenue growth to be driven by its core wireless business, which should benefit from the faster-than-expected rollout of its recently acquired C-band airwaves.  This mid-band spectrum is seen as a sweet spot of sorts for 5G deployment, as it offers a longer range for wide coverage, along with high speeds and capacity. The airwaves already cover over 100 million people and Verizon is looking to expand this to over 175 million people by the end of this year. This could help Verizon win over more subscribers, better competing with T-Mobile, which until now has had a leg up in the 5G race due to its rich mid-band holdings. Verizon’s ARPUs could also benefit if it is able to move more existing subscribers up to more premium unlimited 5G plans.  Separately, Verizon has also been moving deeper into the value-end of the market, with its November 2021 acquisition of Tracfone, the largest mobile virtual network operator (MVNO) in the U.S. and this could also help its subscriber acquisition, to an extent. That said, things could remain mixed on the margins side, as Verizon focuses on integrating Tracfone while scaling up its mid-band 5G network.

While Verizon stock could rise in the near term if it beats earnings estimates, we think the stock has scope for strong returns over the long run as well.  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. Verizon’s cash flows could also improve, as it pares back on capital spending, allowing it to focus on debt reduction and shareholder returns. 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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 Returns Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 VZ Return 5% 3% 0%
 S&P 500 Return -2% -7% 99%
 Trefis Multi-Strategy Portfolio -3% -10% 253%

[1] Month-to-date and year-to-date as of 4/18/2022
[2] Cumulative total returns since the end of 2016

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