Invest in Verizon Now While Shares Are Affordable: Insights from Barron’s
Verizon’s straightforward wireless strategy promises strong returns, even as competitors focus on mergers and acquisitions.
While many telecommunications companies are aggressively expanding through high-profile acquisitions, Verizon Communications Inc. (VZ) has maintained a more conservative approach. Despite its shares increasing only 3.1% year-to-date (YTD) compared to the S&P 500’s 6.8% rise in the same timeframe, Verizon’s robust core business of U.S. phone sales positions it for substantial growth, as highlighted in a recent Barron’s feature. (Also see: Barclays Calls Verizon a Bargain at Current Valuation.)
"The fundamentals in the U.S. wireless sector have improved significantly," noted Deutsche Bank analyst Matthew Niknam in a report following Verizon’s strong second-quarter earnings released on July 24. Investors welcomed Verizon’s ability to exceed earnings expectations and increase overall revenue, including wireless service gains, despite ongoing industry-wide price competition. The New York-based telecom leader also succeeded in minimizing customer churn, expanding its phone subscriber base, increasing free cash flow (FCF), and reducing debt.
Verizon’s Simple Strategy Yields Strong Results
Compared to its telecom rivals, Verizon has operated under the radar. Competitor T-Mobile US Inc. (TMUS) is in the midst of a $26 billion acquisition of Sprint, currently under antitrust review, while AT&T Inc. (T) is heavily investing in media with its $85 billion acquisition of Time Warner, which has court approval but faces a Justice Department appeal, as noted by Barron’s. Staying cautious and avoiding risky mergers appears to be a winning strategy for Verizon.
"While AT&T grapples with a decline in cable subscriptions, Verizon remains flexible regarding content licensing. Meanwhile, as T-Mobile navigates merger integration challenges, Verizon benefits from industry consolidation without taking on similar risks," observed Barron’s analyst Jack Hough.
Since Barron’s first recommended Verizon shares in November, downplaying concerns over pricing battles, the stock has surged approximately 20%, outperforming the S&P 500. The stock remains attractively valued at under 12 times projected earnings for this year, compared to the S&P 500’s 17.5 times, suggesting further upside potential, Hough added. Investors can also enjoy a solid 4.3% dividend yield, comparable to yields on high-grade corporate bonds, according to Barron’s.
Beyond wireless, Verizon has diversified through its Fios broadband service and the Oath segment, which includes media assets expected to generate higher returns alongside the rollout of next-generation 5G technology. (See also: Goldman Sachs Highlights Unfair Treatment of Verizon and Charter.)
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