Verizon’s problems ‘aren’t just narrative’ — but here’s the stock’s bull case

“The problems aren’t just narrative” when it comes to Verizon Communications Inc., according to Wolfe Research analyst Peter Supino.

Yet he upgraded the stock to outperform from peer perform late Wednesday, writing that he and his team “really like” the risk-reward balance.

Supino acknowledged that telecommunications investors have enjoyed a rough ride recently: “In 2023, just one of the Big 3 telcos earned a return on capital greater than its [average] cost of capital.” That was Verizon
but investors who bought both Verizon and AT&T five years ago would have lost money, even when factoring in dividends.

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He likes the picture now, however, cheering “stable and underrated industry economics.” That backdrop gives him more confidence that Verizon will see capital expenditures and leverage decline. Meanwhile, sales growth could improve, and the 2024 consensus view is picking up too.

In Supino’s view, “the industry glass looks half full.” Fears about competition in the industry haven’t turned out to be as bad as Verizon’s stock narrative might lead you to believe, he wrote, while carriers have found it easier to manage promotions financially, in part due to low industry churn.

Verizon’s individual story looks appealing to him as well. “At the company level, [Verizon] offers an established deleveraging trend, signs of improving execution, and 67% of revenue in growing businesses (wireless service & fiber/[fixed wireless access] broadband).” And he expects the company to improve its gross additions, churn and average revenue per user in the quarters to come.

Supino joined KeyBanc Capital Markets analyst Brandon Nispel, who turned bullish on the stock earlier in the week.

Shares of Verizon ended 0.5% higher in Thursday’s session.

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