Verizon VZ stock has easily outpaced its industry and rival AT&T T in 2020. The company’s CEO last week spoke at Apple’s AAPL iPhone 12 event about the 5G future. And the wireless giant is set to report its third quarter financial results on Wednesday, October 21.
What’s Going On…
Verizon topped our Q2 earnings estimates despite coronavirus setbacks. The company’s overall quarterly revenue did slip 5%, even though it added cellphone customers during the quarter. Meanwhile, its media segment, which includes its Yahoo and AOL properties, fell roughly 25% as advertisers pulled back on spending.
The pandemic has brought about challenges for many businesses and consumers. Luckily the wireless companies decided to waive late-payment and overage fees to maintain service for those unable to pay their bills. And the situation appears to be improving. Last quarter, the largest U.S. cellphone carrier by subscribers said that it “expects total wireless service revenue growth for third-quarter 2020 of -1 percent to flat year over year.”
More broadly, Verizon is rolling out its next-generation wireless network. Verizon, AT&T, and T-Mobile TMUS are all currently working to implement and expand their nascent 5G networks. All of the networks are relatively small despite the broader and hyperbolic marketing pitches.
Verizon CEO Hans Vestberg spoke at last week’s iPhone 12 event, which will be Apple’s first 5G-capable smartphones. The company, along with its rivals, are all working to get customers to join their networks when they buy the newest iPhones. But it is still the very early days and Verizon’s focus has been on shorter-range, greater-capacity wireless spectrum.
VZ’s 5G coverage is currently focused on cities, and all three U.S. wireless giants are running the 5G race a little bit differently. Overall, it will likely be a while before these next-generation networks are ubiquitous.
Investors should also note that the implementation is capital intensive, which might favor VZ since it hasn’t taken on a ton of debt to fuel expansion into new industries like AT&T has in its push to become a media powerhouse to take on Netflix NFLX and others.
Verizon was also already focused on various cost-cutting measures before the pandemic. Nonethless, in May it officially closed its deal to buy cloud-based video conferencing firm BlueJeans. The move helps expose the firm to the remote-work space, alongside Microsoft MSFT, Zoom ZM, and others.
VZ shares are up 18% since the market’s March lows to outpace AT&T’s 7% climb. The stock is up around 2% in the past month and it closed regular trading Monday at $57.30 per share. This puts its about 7% off its late 2019 highs. Verizon is also currently trading at a discount compared to its own 12-month highs and median in terms of forward 12-month earnings.
Plus, VZ in early September announced that it raised its quarterly dividend for the 14th year in a row. The company’s 4.4% dividend yield crushes the 30-year U.S. Treasury’s 1.50% and the S&P 500’s 1.66% average, as well as higher-yield tech stocks such as Cisco CSCO and Broadcom AVGO.
Zacks estimates call for Verizon’s adjusted third quarter fiscal 2020 earnings to dip 2.4% to $1.22 per share on 4% lower sales. This would mark an improvement from Q2’s 5% sales decline. Looking further down the road, VZ’s fourth quarter revenue is only expected to dip 2% and its adjusted earnings are projected to come in flat from the year-ago period.
Verizon is currently a Zacks Rank #3 (Hold) that has topped our quarterly earnings estimates in three out of the last four periods. And Verizon is projected to return to growth in FY21, with its sales and EPS both expected to come in above fiscal 2019’s totals.
Therefore, investors with a longer-term horizon might want to consider VZ for its ability to steadily expand within a vital industry, while paying a solid dividend.
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