Is Verizon A Buy Amid Management Changes, Consumer Unit Struggles?

While VZ stock has consistently underperformed the S&P 500, the telecom giant often attracts income-oriented investors, thanks to its dividend. If 5G wireless services reignite earnings and revenue growth, Verizon stock might have much greater appeal.


Shares in Verizon Communications (VZ) have pulled back about 11% so far in 2023. VZ stock fell on worries (AMZN) could resell wireless services under its own brand.

Second-quarter earnings for VZ stock are due July 25. Also, Verizon is searching for a new chief financial officer, the Wall Street Journal reported.

New York-based Verizon may be in a tough position as wireless industry growth slows amid competition with AT&T (T) and T-Mobile US (TMUS), analysts say. Cable TV companies continue to gain traction in wireless services.

The Verizon brand also has lost some oomph as the company fights to regain its marketing claim to operating the highest quality wireless network.

Amid management changes, the company is focusing on generating growth in service revenue, free cash flow and earnings before interest, taxes, depreciation and amortization.

A Dow component, VZ stock pays a 4.8% dividend.

VZ Stock: 5G Revenue Boost Delayed

Also, Verizon has launched new wireless plans for consumers.

“We believe the team has made solid in-roads in turning the ship from the more disappointing performance of 2022 and is on the way to seeing changes over the course of the next year,” said Raymond James analyst Frank Louthan in a report.

Samuel Beckett’s popular play “Waiting for Godot” could be pertinent for Verizon stock and 5G wireless services. It’s taking much longer than expected for 5G synergies to kick in.

Verizon’s consumer wireless business has yet to get a material revenue lift from 5G smart phone users. One bright spot is that Verizon in 2022 added 1.17 million fixed broadband subscribers in homes, up from about 400,000 in the previous year. But revenue from 5G business services using private networks has disappointed.

Verizon Stock: 5G Network Build-Out Key

A VZ stock buyback has been delayed by purchases of radio spectrum needed for 5G services. Verizon owns midband and high frequency millimeter wave radio spectrum. Its 5G network now is available to 200 million people in the U.S.

Revenue growth remains an issue. Data-gobbling mobile video hasn’t panned out as a big moneymaker. Verizon has focused on upgrading consumers to unlimited data plans to boost average monthly revenue per user.

Verizon is ramping up 5G fixed broadband services to homes and businesses. Cable TV companies currently dominate in residential broadband. Verizon has stated that its fixed broadband service will reach 30 million homes by the end of 2023.

Verizon expects 5G business services using private network links to gain momentum in 2024. Also, it’s investing in “mobile-edge compute” sites.

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

Pundits expect 5G wireless to have a role in manufacturing automation, cloud gaming, autonomous vehicles, drones and remote health care services.

VZ Stock: New Management Team

At a recent Morgan Stanley conference, Verizon said it plans to use artificial intelligence technology to improve customer service and lower operating expenses.

Much of Verizon’s top management has come from outside the telecom firm. Verizon Chief Executive Hans Vestberg held the same post at network gear maker Ericsson (ERICY) before joining Verizon. Vestberg and Chief Strategy Officer Rima Qureshi, also an Ericsson veteran, both came to Verizon in 2017.

In addition, Verizon on March 3 announced management changes, including the departure of Chief Financial Officer Matt Ellis.

Verizon also announced that Sowmyanarayan Sampath will become CEO of the Verizon Consumer Group. Sampath earlier led the Verizon Business Group. In December, Verizon let go Manon Brouillette, the head of the struggling consumer business.

Kyle Malady, the head of global networks and technology, was named CEO of Verizon Business Group.

Verizon chief marketing officer Diego Scotti in mid-May stepped down after nearly nine years in the role.

Verizon Stock: Market Share Losses

In a bright spot, Verizon in November finally closed the $6.25 billion acquisition of Tracfone from Mexico-based America Movil (AMX). Tracfone sells pre-paid wireless services. If a recession hits, all U.S. wireless firms will step up marketing in the low end of the wireless market — pre-paid customers.

Verizon’s efforts to diversify into internet content backfired.

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

Content partnerships are key.

Verizon has partnered with Walt Disney (DIS) in video streaming services. Verizon also has partnered with Apple (AAPL) for music services and with sports leagues.

VZ Stock Fundamentals

For the March quarter, Verizon earnings were $1.20 an adjusted share, excluding one-time special items related to the Tracfone acquisition. Profit fell 11% from a year earlier. Revenue fell 1.9% to $32.9 billion.

A year earlier, Verizon earned $1.35 a share on revenue of $33.6 billion. Analysts had projected Verizon earnings of $1.19 a share on revenue of $33.6 billion for the quarter.

Verizon said it lost 127,000 postpaid wireless phone subscribers, vs. analyst estimates for a loss of 120,000, including both consumer and business customers. The consumer unit lost 263,000 postpaid phone subscribers.

A year earlier, Verizon lost 36,000 postpaid phone subscribers.

The telecom company added 393,000 fixed wireless broadband customers, slightly more than the previous quarter.

Verizon Stock: Is It A Buy Right Now?

Verizon stock fell 24% in 2022.

Technical ratings have weakened. VZ stock holds a Relative Strength Rating of 17 out of a best-possible 99, according to the IBD Stock Checkup. The best stocks tend to have RS ratings of 80 or better.

In addition, Verizon stock owns an IBD Composite Rating of 23 out of 99. IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.

Meanwhile, Verizon stock holds an Accumulation/Distribution Rating of D. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.

As of July 11, VZ stock has no valid entry point. It needs to forge a new base.

Investors could take a look at other 5G stocks, such as chip makers or network gear suppliers.

Meanwhile, emerging 5G wireless apps could take years to generate significant revenue. Rather than buy Verizon stock, income-oriented investors might consider a large ETF such as SPY, which tracks the S&P 500.

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


IBD Digital: Unlock IBD’s Premium Stock Lists, Tools And Analysis Today

Learn How To Time The Market With IBD’s ETF Market Strategy

How To Use The 10-Week Moving Average For Buying And Selling

Get Free IBD Newsletters: Market Prep | Tech Report | How To Invest

IBD Live: A New Tool For Daily Stock Market Analysis

Source link