After years of underperformance, Verizon (VZ) is making calculated moves to regain market share and investor confidence. The successful rollout of its crucial C-band spectrum and the appointment of former PayPal CEO Dan Schulman represent pivotal changes that could redefine its investment appeal, particularly for those seeking stable income and value.
For long-term investors, the telecom sector, particularly giants like Verizon Communications (VZ), has often been viewed as a bedrock of stability and consistent dividends. However, in recent years, Verizon stock has been a value destroyer, struggling with market share losses and a strategy that failed to deliver growth. Yet, a confluence of recent developments suggests that the tide may be turning for the telecom giant, potentially positioning it for a significant resurgence.
The company’s shares experienced a notable surge after its recent strong third-quarter earnings report, which exceeded both top and bottom-line estimates. This positive momentum was further bolstered by an upward revision of its free-cash-flow guidance, increasing by $1 billion to a projected $18 billion. While challenges persist with declining revenue and profits, partly due to a dip in equipment sales, investor expectations had fallen so low that even modest improvements were enough to spark optimism.
The C-Band Spectrum Breakthrough: A Game-Changer for 5G Performance
A major turning point for Verizon has been its aggressive and successful deployment of C-band spectrum. Previously, the company’s 5G strategy struggled due to a poorly executed high-frequency spectrum rollout, leading to customer complaints about coverage gaps and subsequent market share losses to competitors like T-Mobile. However, Verizon has now doubled down on its commitment to acquiring and deploying mid-band spectrum, a move that is already yielding significant benefits.
During the recent earnings call, management highlighted early access to its remaining C-band spectrum. In cities where this spectrum has been deployed, customers are experiencing two to three times the increase in spectrum depth, with peak speeds nearly tripling from 900 megabits per second to an impressive 2.4 gigabits per second. CEO Hans Vestberg emphatically stated, “C-band is a game-changer for our business, giving us better customer retention and step-up as well as strong broadband opportunity with fixed wireless access.”
This strategic shift not only addresses past coverage issues but also helps fill the gaps left by the earlier high-frequency, millimeter-wave technology. Importantly for investors, the bulk of the significant costs associated with deploying this crucial spectrum are now behind the company, with $3.7 billion in spectrum clearing costs paid out of operating cash flow and minimal remaining payments. This positions Verizon to capitalize on its enhanced network without a heavy future capital burden.
New Leadership and an AI-Fueled Upgrade Cycle
In a surprising move on October 6, Verizon announced that former PayPal CEO Dan Schulman would take over as its new leader, replacing Hans Vestberg, who had been CEO since 2018. This leadership change initially caught investors off guard, leading to a more than 5% drop in the stock price the day of the announcement, just weeks before its Q3 earnings report. Investors, wary of unexpected shifts, questioned the timing of such a significant personnel change, some even anticipating negative results. However, the company’s strong Q3 performance, combined with management’s stated belief that Schulman is “the right leader to chart Verizon’s next phase of increased customer focus and financial growth,” suggests a forward-looking approach.
This strategic pivot comes amidst predictions of a potential “AI-fueled upgrade cycle.” Analyst Gregory Williams of TD Cowen, who maintains a “buy” recommendation on Verizon with a $51 price target, believes that new phones with native AI technology, such as those in development from Apple, will be highly popular. This could significantly boost telecom service providers, as consumers flock to more powerful models. Despite a slowdown in phone upgrading activity noted in Verizon’s second-quarter results, this anticipated surge in upgrades could provide a much-needed tailwind, potentially underestimated by current management and the market. Industry experts are closely watching to see how this technological advancement will impact subscriber growth and equipment revenue in the coming quarters.
Financial Health and Dividend Appeal
For income-focused investors, Verizon’s dividend remains a significant draw. Following its recent stock pop, the dividend yield stands at an attractive 7.8%. The company has consistently increased its dividend for 20 consecutive years, with a sustainable payout ratio of 64.52% based on its trailing twelve-month earnings per share of $4.20. While rival AT&T also offers a high yield, analysts like Michael Hodel from Morningstar (as cited in Article 3) prefer Verizon due to its concentrated focus on core telecom and a stronger balance sheet, which provides more stability for its dividend and less burden from debt repayment compared to AT&T.
Despite current economic headwinds that have seen consumers reduce discretionary spending on new phone upgrades, Verizon’s business fundamentals show resilience. The company operates with robust profit margins of approximately 13% and trades at a remarkably low price-to-earnings (P/E) ratio of just 9.91 (trailing) and 8.87 (forward), significantly below the S&P 500 average of over 25. This valuation implies that the stock is currently priced for essentially no growth, creating a low bar for the business to overcome and potentially offering substantial upside.
Financial stability is a key focus, with profits expected to stabilize next year. The company plans to commit more cash towards debt reduction, which stood at $172.53 billion in the last 12 months. Furthermore, capital expenditures are projected to decrease modestly, providing an additional boost to cash flow. With a free cash flow of $20.75 billion in the past 12 months and an analyst consensus target price of $47.43, suggesting a 13.96% upside from current levels, Verizon’s financial outlook appears increasingly robust.
The Road Ahead for Verizon Investors
The successful deployment of C-band spectrum, coupled with improving subscriber trends in the business segment and stabilizing losses in the consumer division, indicates that the worst may indeed be behind Verizon. The appointment of Dan Schulman as the new CEO signals a proactive approach to addressing market challenges and driving future growth, even if the initial investor reaction was one of uncertainty. Investors should closely monitor the company’s progress in postpaid phone subscribers in upcoming quarters, as this will be a crucial indicator of the effectiveness of its enhanced network strategy.
As a leading telecom provider offering essential services to millions of consumers and businesses, Verizon represents a fundamentally stable investment. Its attractive dividend, coupled with a valuation that undervalues its long-term potential, makes it a compelling opportunity for those seeking a reliable, income-generating asset. While immediate explosive growth may not be on the horizon, the strategic shifts in spectrum deployment and leadership are laying the groundwork for a more competitive and financially sound future.
For more details on executive leadership changes, investors can refer to official company announcements such as those reported by Reuters. Further insights into Verizon’s financial performance and strategic C-band deployments can often be found in the company’s quarterly earnings reports and investor presentations, accessible via Verizon Investor Relations.
