Stock Analysis & Ideas

Can Verizon Stock Regain an Edge over Its Rivals?

Story Highlights

Verizon stock has been getting roughed up by its rivals as of late. Still, with a depressed multiple and compelling edge computing technology, VZ stock seems more like a real value play rather than a dangerous falling knife.

Shares of telecom titan Verizon (VZ) is at new 52-week lows of around $44 per share despite the recent market rally. Verizon used to be a top dog in the wireless space, but now it looks to be on the receiving end as its rivals pick up their game in an effort to take share. Though the industry is on the right side of a secular trend (5G tailwinds), with many intriguing investments (5G edge) on the horizon, Verizon has yet to show that it can retain its dominance amid intensifying competition.

For that reason, I’m not yet able to get behind Verizon stock as it continues tumbling into the abyss. I am neutral on VZ stock, even as the valuation screams bargain.

Further, there’s likely a reason why Warren Buffett’s legendary firm, Berkshire Hathaway (BRK.B), dumped the rest of its Verizon stake in the latest quarter. The firm can’t seem to hold its own against the competition.

Should Investors Follow Buffett in Dumping VZ Stock?

Warren Buffett knows value when he sees it, but he’s been known to be wrong from time to time. Look no further than his airline bets, which he ditched at a loss during the 2020 stock market crash. Indeed, there’s a fine line between real value and value traps. Sometimes, the line is tough to see for everybody but the most disciplined value investor. Just because Buffett parted ways with Verizon stock, which fits the bill as a deep-value play, doesn’t mean current VZ shareholders should ditch the stock themselves.

The stock trades at just 8.9 times trailing earnings and 1.4 times sales. This rock-bottom price tag gives Verizon a huge 5.65% dividend yield.

Now, Verizon’s low multiple comes with serious baggage. The company’s wireless business is fading away at the hands of some scary competitors in AT&T (T) and T-Mobile (TMUS).

T-Mobile has been doing nearly everything right to take share. In addition, AT&T’s spin-off of its media assets seems to have been a removal of a distraction standing in the way of next-level wireless subscriber growth. In short, T-Mobile is the dividendless top performer that’s continuing to take share, while underdog AT&T has endured a transformation that could see it become a wireless growth star.

Verizon needs to keep up with AT&T and T-Mobile if it’s to prove to be real value and not some sort of trap. The latest (second quarter) results were quite rough. Subscriber numbers surprised to the downside, and management ended up having to lower guidance. The competition seems to be getting its way with Verizon, and there don’t seem to be any easy solutions at this juncture.

As recession looms, more disappointment could be on the horizon. The momentum behind the competition seems too high, and if Verizon is to pivot and bolster its wireless business again, it needs to step up its promotional efforts.

Analyst Craig Moffett of MoffettNathanson recently downgraded his VZ stock price target from $55 to $41, noting that Verizon was the “biggest loser” from AT&T’s “aggressive” promotions.

Indeed, one telecom firm’s gain is another’s loss. At this juncture, Verizon may have no choice but to enhance its own promotions to match that of its rivals. Doing so could have a big impact on margins, though, which could be due to fall under mounting pressure as we inch closer to the much-anticipated downturn.

It’s not just AT&T that’s a thorn in Verizon’s side. T-Mobile is picking up serious traction again. With a lack of dividend commitments, the firm could continue moving in on Verizon’s network, which certainly seems to be up for grabs.

Verizon’s Collaboration with AWS is Intriguing

Apart from amazing promos and big infrastructure upgrades, Verizon’s prior partnership with AWS (Amazon Web Services) on mobile edge is one that could help Verizon get a bit of its edge (forgive the pun) back from its peers.

Verizon and AWS are bringing mobile edge computing to 19 select locations in the U.S. Such an edge network can help deliver incredibly low-latency performance to customers in covered areas.

Online video gaming, the metaverse, and the internet-of-things (IoT) devices will call for lower latency. Though there may not be the need for latency-sensitive networks today, coming technological trends could bolster demand in a hurry.

The rise of the metaverse (and virtual or augmented reality), in particular, could bolster demand for edge computing at some point over the next five years. The Verizon and AWS 5G edge partnership is one that could help put Verizon back on the map.

Now, there is a risk that the public is not yet ready for such next-generation 5G technologies. In any case, Verizon still seems to be on the right side of innovation. Despite Verizon’s recent shortcomings, I am inclined to view the firm more as a deep-value stock than a trap.

In any case, Verizon stock’s negative momentum makes it a falling knife that’s hard to catch. The stock is down more than 14% over the past year and down around 10% year-to-date.

What is a Good Price for Verizon Stock?

Turning to Wall Street, Verizon has a Hold consensus rating based on three Buys, 15 Holds, and one Sell assigned in the past three months. The average VZ Stock price target is $52.08, implying an upside of 17.6%. Analyst price targets range from a low of $41.00 per share to a high of $68.00 per share.

Takeaway – VZ Stock Likely Has Real Value

Verizon stock has been bettered by the competition in recent quarters. Though negative momentum could continue as industry headwinds loom, I do think there’s real value to be had in the stock, even as Buffett’s firm throws in the towel.


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