VZ share: Is it a purchase or a sale? Here’s what earnings, chart show on Verizon shares

While VZ stock has consistently underperformed the S&P 500, the telecoms giant often attracts income-seeking investors thanks to its dividend. However, if 5G wireless services restart earnings and revenue growth, Verizon stock could become a lot more attractive.

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Verizon Communications (vz) has gained about 2% so far in 2023. Verizon stock fell 24% in 2022, while the S&P 500 fell more than 19%.

Verizon reported fourth-quarter adjusted earnings that were in line with estimates but missed its 2023 earnings guidance. More aggressive wireless network promotions, mainly smartphone subsidies, are expected to impact earnings in 2023.

Some analysts have focused on higher free cash flow estimates in 2023 and 2024 amid a projected decline in capital spending.

“[Verizon’s]underlying business is relatively recession/inflation resistant, while multi-year FCF growth (supported by a significant reduction in capex in 2024) and secure dividend make for a defensive stock in a risk-free band,” said Cowen analyst Gregory Williams in a report.

The mobile giant is facing a bitter marketing battle in the face of the rollout of 5G networks.

On December 5th, the company turned its consumer wireless business on its head. Verizon has fired Manon Brouillette, who joined the company in June 2021 and was promoted to chief executive of consumer operations in January 2022. CEO Hans Vestberg took over Brouillette’s duties.

Verizon may be in a difficult position as wireless competition mounts AT&T (T) And T Mobile USA (TMUS), say analysts. Rather than chasing subscriber market share, Verizon has focused on average monthly subscriber revenue.

VZ share: loss of market share

Telecom stocks were viewed as a defensive investment amid fears that a recession could hit the US economy. As a Dow component, Verizon stock pays a 4.8% dividend.

An overhang of VZ shares concerns mid-band radio frequencies bought for 5G mobile services. Verizon shares spent $53 billion in a government auction, including stimulus payments to satellite operators and clearing costs. Purchase of mid-band spectrum for 5G services delays a VZ share buyback.

VZ stock sold a 90 percent stake in its media and advertising business to Apollo Global Management for $5 billion in May 2021.

Finally, in a bright spot, Verizon completed the $6.25 billion acquisition of Mexico’s Tracfone in November America Mobile (AMX). Tracfone sells prepaid cell phone services.

One problem for Verizon stock is that competition for 5G wireless is expected to intensify.

T-Mobile US’ acquisition of Sprint created a stronger competitor. Additionally, AT&T merged with its WarnerMedia business discovery (DISCA). As a result, a stripped-down AT&T is expected to have more cash to invest in 5G wireless technology and fiber-optic services.

Verizon Stock: Midband Spectrum Key to 5G Revenue Growth

Now that Verizon has ample 5G mid-band spectrum, network buildout will be critical. Verizon aims to reach 175 million people with mid-band spectrum-based 5G services offering faster data speeds by the end of 2022.

Also, Verizon plans to use the 5G mid-band spectrum to provide fixed broadband services to homes. Cable TV companies currently dominate the residential broadband space. Telekom said its fixed broadband service will reach 30 million homes by the end of 2023.

Verizon expects 5G enterprise services to gain momentum in 2022. The company is also investing in “mobile edge computing” sites that offer private 5G business services.

VZ share: content deals

New York-based Verizon has partnered with Walt Disney (DIS) in video streaming services. Disney and Verizon added Hulu and ESPN+ to their streaming partnership in August. Verizon also has a partnership for Apple (AAPL) music services and with sports leagues.

In December 2020, Verizon added discovery (DISCA) as a video streaming partner.

Thanks to low interest rates, Verizon stock has had some good runs since the 2008-2009 global recession. The telecom giant eventually got into IBD leaderboard. It is a curated list of leading stocks characterized by technical and fundamental metrics.

But Verizon has much more exposure to the U.S. wireless market than telecoms rival AT&T. Verizon generates nearly 85% of its adjusted revenue from its wireless business.

The company has been paying off debt since the purchase Vodafone group‘S (VOD) in early 2014, a 45 percent stake in a $130 billion wireless joint venture.

Vestberg was CEO at a network equipment manufacturer ericsson (Eric) before you come to Verizon. Vestberg and Chief Strategy Officer Rima Qureshi, also an Ericsson veteran, both joined Verizon in 2017.

VZ stock fundamentals in a maturing industry

Sales growth remains an issue. Verizon’s long-haul problem is that the US wireless market is saturated. Many consumers have delayed upgrading to new smartphones. Also, data-guzzling mobile video hasn’t turned out to be a big moneymaker.

For the December quarter, Verizon’s earnings were $1.19 per adjusted share, down 10% year over year excluding special items. Revenue rose 3.5% to $35.3 billion.

A year earlier, Verizon was earning $1.31 per share on revenue of $34.1 billion. Analysts had forecast Verizon to earn $1.19 per share on sales of $35.1 billion for the quarter.

Verizon said it added 217,000 postpaid cell phone subscribers versus analyst estimates for a 201,000 gain, including consumer and business subscribers. Verizon added 41,000 consumer subscribers in the fourth quarter. In the September quarter, Verizon lost 89,000 consumer lines.

For 2023, Verizon is projecting adjusted earnings per share of $4.70 at the midpoint of guidance. Verizon did not provide an overall sales forecast. It forecast 3.5% revenue growth for wireless services versus 2.5% estimates.

VZ stock analysts polled by FactSet had estimated 2023 earnings at $4.96 per share, with revenue up 1.2%.

Verizon forecast adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — in a range of $47 billion to $48.5 billion, missing estimates. Analysts had forecast growth of 1.5% to $48.7 billion.

Verizon Stock: 5G Wireless to the Rescue?

Verizon’s 5G cellular network uses both low-band and high-frequency radio waves. Its low-band 5G services are widely available but don’t offer much improvement in data speeds over older 4G networks.

Verizon’s 5G “Ultrawideband” or UWB mobile services use the mmWave radio frequency spectrum.

Verizon has partnered with Amazon Web Services, the cloud computing arm of Amazon.com (AMZN) to develop 5G apps for internet-connected industrial devices. Another partner is IBM (IBM).

Experts expect 5G wireless to play a role in factory automation, cloud gaming, autonomous vehicles, drones and remote healthcare services.

VZ Stock Analysis: Is It a Buy Now?

According to the VZ share, it has a relative strength rating of 23 out of the best possible 99 IBD inventory check. The best stocks typically have an RS rating of 80 or better.

Verizon stock also has an IBD Composite Rating of 32 out of the best possible 99. IBD’s Composite Rating combines five separate proprietary ratings into one user-friendly rating. The best growth stocks have a composite rating of 90 or better.

Verizon stock, on the other hand, has an accumulation/distribution rating of D-plus. This rating analyzes a stock’s price and volume changes over the last 13 trading weeks. The rating on a scale from A+ to E measures the institutional buying and selling of a share. A+ indicates strong institutional buying; E means heavy selling. Think of the C-Class as neutral.

Verizon stock is still trading below its 200-day moving average.

As of February 20, the VZ share has no valid entry point. A new basis must be created.

Investors might look at other 5G stocks such as chipmakers or network equipment suppliers.

Meanwhile, it could be years before emerging 5G wireless apps generate significant revenue. Instead of buying Verizon stock, income investors might consider a large ETF like SPY, which tracks the S&P 500.

Follow Reinhard Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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