Verizon Earnings: Modest Steady Growth Should Continue as Broadband Expands

Key Morningstar Metrics for Verizon Communications

• Fair Value Estimate: $53.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of Verizon Communications’ Earnings

In the third quarter, Verizon’s VZ wireless service revenue increased 2.7%, while phone sales continued declining. The firm added 81,000 net postpaid consumer wireless customers versus a 51,000 net loss a year ago. Adjusted EBITDA increased 2.1%, while free cash flow dipped slightly on higher cash taxes.

Why it matters: Verizon continues to deliver slow, steady service revenue growth as its market share lead narrows. Solid cost control and the drop in costly phone upgrades have also allowed the firm to expand EBITDA margins modestly throughout 2024.

• Revenue per consumer postpaid wireless account increased 4% year over year. During the quarter, Verizon added 209,000 net residential fixed-wireless broadband customers to reach 2.5 million customers, 50% more than a year ago.
• The firm took a $1.7 billion severance charge during the quarter as it continues to trim its workforce. Headcount will likely end 2024 at less than 100,000, down from more than 117,000 two years prior.

The bottom line: We maintain our fair value estimate of $53 per share. With Verizon trading more than 20% below this figure, we believe the stock is the most attractive of the three major US wireless carriers.

• The favorable structure of the US wireless industry is the primary basis for our narrow moat rating for Verizon. We expect smaller rivals T-Mobile TMUS and AT&T T to gradually gain share, limiting Verizon to 2%-3% wireless service revenue growth in the coming years.
• We expect pricing discipline will drive most of Verizon’s growth, allowing the firm to maintain EBITDA margins and grow free cash flow. Most recently, the firm cut the autopay discount on older wireless plans in half to $5 per line per month, taking effect this month.

Long view: Management also updated its broadband ambitions, calling for 8 million-9 million fixed-wireless customers by 2028 versus 4.2 million currently. Verizon also plans to pass 35 million-40 million locations with fiber over the long term, assuming the Frontier FYBR acquisition closes.