Oppenheimer analyst Timothy Horan has maintained his Outperform rating and $48 price target for Verizon Communications Inc. (VZ). The stock is trading higher on Tuesday following the release of its first-quarter results on Monday. Horan noted that Verizon continued to build on its strong momentum from 2023, driven by significant network upgrades, refreshed management, and improved go-to-market strategy. The results were messy due to January price increases, which impacted volumes, as did one-time expenses. However, this sets up the company for strong FCF growth going forward. Horan said that Verizon was much better positioned than two years ago, with solid momentum and trends set to improve further. It remains one of his best dividend plays with an attractive ~7% yield. Debt is high at $151.7 billion, but paydown is of focus and should be reduced by over $6 billion per year, as per Horan.
Horan also highlighted that ARPA grew 3.9%, driven by pricing action and consistent myPlan adoption, which created a recurring revenue stream of perks/services. He said the second quarter would be the high watermark for growth, given the quarter impact of price increases, followed by tougher year-on-year comps in the second half.
Postpaid phone net adds of -68K improved versus fiscal first-quarter 2023’s -127K. He estimated as many as 50K phone additions were from second lines, but this is a limited opportunity and not a primary source of momentum. The company expects to achieve positive Consumer net adds for fiscal 2024.
The analyst said Verizon now serves over 11 million broadband customers across FWA and wireline. FWA net adds moderated to +354K, but this was not unexpected given ramping competition from AT&T Inc T and the low move environment. FiOS remains steady at +53K net adds.
Horan trimmed fiscal 2024 and 2025 revenue by 20bps each, mainly on weaker equipment revenues but a net positive for EBITDA and FCF. He reduced fiscal 2024 and 2025 EPS by $0.01 each on higher interest expense. The analyst maintained his remaining fiscal 2024 quarterly and 2025 postpaid phone net adds and FWA estimates. The fiscal 2024 FCF estimate of $19 billion is unchanged, but $1.5 billion was shifted from the first to the second half.
Verizon stock gained 8% in the past 12 months. Investors can gain exposure to the stock via Invesco Dow Jones Industrial Average Dividend ETF DJD and First Trust Morningstar Dividend Leaders Index Fund FDL. VZ Price action: Verizon shares traded higher by 3.45% at $39.93 at the last check Tuesday.
