By Verizon Communications Inc. has been facing challenges beyond just its narrative, says Wolfe Research analyst Peter Supino.
However, despite the hurdles, Supino has upgraded the stock to outperform from peer perform, citing a favorable risk-reward balance.
Supino is aware that telecommunications investors have had a rough ride lately, with only one of the Big 3 telcos earning a return on capital greater than its average cost of capital in 2023. This happened to be Verizon. However, those who invested in Verizon and AT&T five years ago would have incurred losses even with dividends factored in.
But Supino is optimistic about the current situation, highlighting stable and underrated industry economics. This favorable backdrop has given him confidence that Verizon will witness a decline in capital expenditures and leverage. Moreover, there are expectations of improved sales growth, with the 2024 consensus view also showing positive signs.
In Supino’s opinion, “the industry glass looks half full.” Despite concerns about competition in the sector, it hasn’t been as detrimental as suggested by Verizon’s stock narrative. Additionally, carriers have found it easier to manage promotions financially, partly due to low industry churn.
Verizon’s individual story also appeals to Supino. He points out that the company offers an established trend of deleveraging, signs of improved execution, and 67% of its revenue comes from growing businesses such as wireless service and fiber/fixed wireless access broadband. Furthermore, he expects Verizon to enhance its gross additions, reduce churn, and increase average revenue per user in the upcoming quarters.
Supino’s bullish stance on the stock aligns with KeyBanc Capital Markets analyst Brandon Nispel, who expressed similar optimism earlier in the week.
As a result of these positive assessments, shares of Verizon ended 0.5% higher in Thursday’s trading session.
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