Where Is Verizon Stock Headed Post A Tough Q2?

Verizon (NYSE:VZ)  posted a mixed set of Q2 2022 results with adjusted EPS coming in at $1.31, slightly below estimates, and down from around $1.40 last year. Verizon Revenue stood at about $33.8 billion, roughly in line with estimates and roughly flat compared to the previous year. Although the closely watched wireless business saw revenue expand 9.1% year-over-year due to the acquisition of low-cost prepaid provider TracFone, the company is falling behind in the lucrative postpaid phone market, with postpaid phone net additions coming in at just 12,000, well below estimates. In comparison, AT&T added 813,000 postpaid phone subscribers over the last quarter, driven by aggressive promotions, while T-Mobile, which reports results this week, is also expected to fare well, driven by its lead with 5G network deployment. Moreover, Verizon is also finding it more challenging to move consumers to more premium plans, given strong inflation and weak consumer confidence in the U.S. which is impacting household budgets. This is also impacting the company’s revenue growth.

Verizon’s margins are also coming under pressure, with operating margins for the consumer business declining to 27.9%,  from 31.9% last year, as rising inflation and mounting competition in the wireless space are causing the company to spend more on promotional activity. Verizon has revised its adjusted EPS guidance for 2022 downward to a range of $5.10 to $5.25, from its previous guidance for adjusted EPS of $5.40 to $5.55.

We have reduced our price estimate for Verizon stock by about 15% to $47 per share, to account for the tough competitive environment and weaker outlook. However, our price estimate is slightly ahead of the current market price of about $44 per share. There are a couple of factors that could prove catalysts for the stock going forward, including Verizon’s ongoing deployment of a mid-band spectrum for 5G, which could help to meaningfully improve its wireless network performance. Separately, the company is also increasing its presence in the budget wireless market via TracFone and this could be well timed, given the tough economic environment.  See our analysis on Verizon Valuation: Expensive or Cheap for more details on Verizon’s valuation and how it compares to peers.

With inflation rising and the Fed raising interest rates, Verizon has fallen 15% this year. Can it drop more? See how low can Verizon stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes

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[1] Month-to-date and year-to-date as of 7/25/2022
[2] Cumulative total returns since the end of 2016

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