Verizon (NYSE:VZ) posted a mixed set of Q1 2022 results as the company faces pressure from strong competition in the 5G wireless market and rising inflation. Over the quarter, revenue grew by 2% year-over-year to $33.5 billion, driven by higher wireless service and equipment sales, although it was partly offset by declines in some wireline products. Verizon lost a net 36,000 postpaid phone subscribers – which are typically the most lucrative segment of the wireless market – amid rising competition. In comparison, rival AT&T reported a net gain of subscribers. Verizon’s earnings are also coming under some pressure. Adjusted EPS declined to $1.35 per share, from $1.36 in Q1 2021 and Verizon now expects full-year earnings for 2022 to come in at the lower end of the previously guided range of $5.40 to $5.55. This is due to continued spending on network upgrades and rising inflation, which could limit the number of customers upgrading to more premium plans. Higher competition in the wireless market could also put pressure on the company’s cost base.
We are reducing our price estimate for Verizon from $63 per share to about $56 per share due to the current headwinds the business is facing. However, our price estimate is still about 10% ahead of the current market price. There are a couple of factors that could drive the stock going forward. Verizon has been rolling out its recently acquired C-band airwaves – which offer wider coverage, along with high speeds and capacity – at a faster than expected pace, and this could help the company with customer acquisition and eventually with better monetization. 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 drive incremental growth. Verizon’s valuation multiples also look appealing. The stock currently trades at just about 9.5x consensus 2022 earnings, which is well below rival T-Mobile, which trades at over 52x, and also slightly below slower-growing Dish Network, which trades at 12x forward earnings. With the Federal Reserve eyeing more aggressive interest rate increases, investors could see more value in Verizon stock, with its strong earnings yields and a dividend yield of over 4.5%. 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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