Shares of telecom giant Verizon (VZ) are in the process of climbing back after a rough end to 2021. Though the stock has not done much over the past five years, with a meager 11% in capital gains over the timespan, it’s hard to pass up the remarkably low multiple (10.1 times trailing earnings) and its sizeable 4.8% dividend yield.
With the recent storm of volatility hitting broader markets and Warren Buffett’s vote of confidence in his ownership of shares, I find Verizon to be an intriguing option, as investors brace themselves for choppy market moves and high inflation.
Warren Buffett’s stake in the firm alone is not enough to justify a big purchase in a firm with a track record of being a perennial underperformer.
Although increasing competition and higher interest rates don’t bode well for the telecom titan as it looks to spend considerable sums to bolster its infrastructure, I remain bullish on VZ stock.
The valuation seems way too cheap. After an upbeat Analyst Day, there are many things to look forward to, as the firm stays on track with its long-term plan while introducing intriguing initiatives that could help bolster sales growth. Further, as a potential deep-value play, I expect the stock to be spared from the recent wave of selling that’s hit the tech sector.
Verizon Stays Steady on Track
Verizon is a U.S. wireless leader that’s well-positioned to defend its turf, even against fast-moving competitors in the space. Indeed, the 5G buildout still has a long way to go, and Verizon should be a significant beneficiary as the adoption of such technologies continues over the coming years.
There wasn’t anything shocking revealed during Verizon’s 2022 Investor Day presentation. Management expects to see mid-single-digit revenue growth (around 4%) in 2024 and beyond. Verizon’s 5G ultra wideband infrastructure is also expected to provide coverage to around 175 million people by year-end. Indeed, the company still has its foot on the gas.
The balance sheet remains in decent shape, but there is a considerable amount of debt that the firm will need to continue chipping away at. For now, though, management believes it has the flexibility to repurchase shares, even before the firm hits its debt targets.
At such a depressed multiple, buybacks are a very wise decision. Though, it would have been nice if the balance sheet allowed the firm to get more aggressive with share repurchases at these depths. In any case, things are going according to plan. That alone should be enough to power VZ stock higher as it continues investing heavily to further improve the strength of its superior wireless network.
Gaining an Edge Over Rivals
The American telecom industry is wildly competitive. High expenditures and downward pressure on prices are to be expected. With one of the better networks across select localities, Verizon seems better able to hold its own versus select rivals.
With the “Verizon Plus Play” subscription platform unveiled, the company could have yet another differentiator to help it take a bit of share over its telecom peers. Indeed, the subscription-centralization service could be a big draw to Verizon networks. In addition, an exciting new partnership with Meta Platforms (FB) could yield an offering that’s too good to resist.
Wall Street’s Take
Turning to Wall Street, VZ stock comes in as a Moderate Buy. Out of nine analyst ratings, there are four Buys and five Hold recommendations.
The average Verizon price target is $60.44, implying an upside potential of 13.2%. Analyst price targets range from a low of $56.00 per share to a high of $68.00 per share.
The Bottom Line on VZ Stock
Indeed, Verizon is doing a lot of things right. With strong wireless momentum and new, intriguing services, Verizon will likely sustain solid mid-single-digit top-line growth over the long haul.
Sure, Verizon may not be the most exciting dividend stock out there, but it’s doing many things right. The Meta partnership, in particular, could be vital to winning over some business from its up-and-coming rivals.
Whether or not such partnerships and value-adding services result in substantial wireless subscriber adds is a question mark. In any case, such efforts are incredibly creative, and I wouldn’t be surprised if Verizon’s rivals ended up copying its strategy.
At the end of the day, it’s all about offering consumers more value for their dollars. Whether through the inclusion of a platform like Verizon Play Plus, or exclusive access to some form of the metaverse, it’s clear that the telecom titans are eager to further differentiate in a commoditized market. It is possible, and I think Verizon is in great shape to do it.
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