Up 25% Over The Last Three Months, Will Verizon See Further Gains Following Q4 Results?

+6.08%
Upside
40.10
Market
42.54
Trefis
VZ: Verizon logo
VZ
Verizon

Wireless behemoth Verizon (NYSE:VZ) is slated to report its Q4 2023 results on January 23. We estimate that revenues will come in at about $34.6 billion for the quarter, in line with consensus estimates and down 2% compared to last year. We project that earnings will stand at $1.09 per share, compared to consensus estimates of $1.08 per share. So what are some of the trends that are likely to drive Verizon’s results? See our interactive dashboard analysis on Verizon Earnings Preview for more details on how Verizon’s revenues and earnings are likely to trend for the fourth quarter.

Amid the current financial backdrop, VZ stock has suffered a sharp decline of 35% from levels of $60 in early January 2021 to around $40 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. However, the decrease in VZ stock has been far from consistent. Returns for the stock were -12% in 2021, -24% in 2022, and -4% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023  – indicating that VZ underperformed the S&P in 2021, 2022, and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Communication Services sector including GOOG, META, and NFLX, and even for the megacap stars TSLA, MSFT, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could VZ face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

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Verizon’s business has been seeing headwinds of late, with the carrier falling behind in the lucrative postpaid phone market as T-Mobile leads the industry driven by its strong 5G network, and AT&T banks on aggressive promotions. Over Q3 2022, Verizon reported postpaid phone net adds of just about 100,000 compared to net adds of 8,000 in the year-ago period. This compares to T-Mobile which added 850,000 postpaid phone subscribers. The company is also likely to face more competition from cable players such as Comcast, who are doubling down on the wireless business. However, any weakness in the wireless phone space could be offset by strength in the fixed wireless broadband segment, which is finding favor with U.S. customers, due to flexibility and low costs. In the previous quarter, Verizon added 384,000 fixed wireless subscribers, up by about 42,000 compared to the last year. This should help the company drive overall service revenue growth.

However, we remain neutral on Verizon stock despite the current weakness, with a $39 price estimate, which is almost in line with the current market price. Verizon has been rolling out its wideband spectrum, which now reaches over 200 million people across the U.S.  This could help the company win over more subscribers and up-sell superior plans to its massive retail wireless base of over 120 million subscribers. See our analysis on Verizon Valuation: Expensive or Cheap for more details on Verizon’s valuation and how it compares to peers.

 Returns Jan 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 VZ Return 7% 7% -25%
 S&P 500 Return -2% -2% 110%
 Trefis Reinforced Value Portfolio -4% -4% 582%

[1] Month-to-date and year-to-date as of 1/8/2024
[2] Cumulative total returns since the end of 2016

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