Verizon Communications Inc. shares are fresh off their worst quarterly performance in two decades, but one analyst thinks the name deserves a fresh look.
Oppenheimer analyst Timothy Horan upgraded Verizon’s stock
to outperform from neutral late Wednesday, writing of his optimism for a “gradual stabilization-to-growth” of the Verizon subscriber base, even though he sees the potential for “volatile” near-term trends.
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Horan said he had downgraded Verizon shares in February 2021 “because the company overpaid for spectrum and [was] late to mid-band 5G builds, which led to customer defections, weaker balance sheet, and substantial capex investment.” But now he sees those areas “reversing” as Verizon improves its network quality and benefits from factors like price hikes and fixed-wireless access.
While much has been made among analysts of T-Mobile US Inc.’s
strong 5G positioning, Horan said that Verizon seems to be “gradually catching up to TMUS in terms of 5G network performance and capabilities.”
The company also has various initiatives meant to put it on a path to subscriber growth. Verizon recently launched a new Welcome Unlimited plan, which is intended to get people to bring their existing phones over to Verizon, as well as the Apple One Unlimited plan, which bundles various Apple services for gaming, music, and more.
Horan wrote that he estimates phone net additions could bounce back to 600,000 in fiscal 2023 “after a sluggish 2022.”
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Verizon is also offering fixed-wireless access “for $25 a month when bundled with premium plans, a tempting replacement to expensive cable broadband,” Horan wrote. Through fixed-wireless access, some carriers are using their wireless networks to provide home-internet access.
He cheered expectations for “strong free-cash flow growth of 15% per year” now that Verizon has moved passed peaks for investment and leverage. Additionally, he likes the company’s “attractive” dividend yield of 6.6%, which he notes is nearly quadruple what the S&P 500
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Shares of Verizon have lost 25% so far this year, as the S&P 500 has fallen 21% and as the Dow Jones Industrial Average
has declined 17%.