In This Article:
If you have ever struggled with a dropped phone call, you might understand the frustration Verizon Communications (NYSE: VZ) has been for its shareholders. Despite the telecom giant being on track to end 2024 with a positive return, shares have deeply underperformed stock market benchmarks in recent years, losing about 15% of their value in the past five years compared to an 84% gain in the S&P 500 (SNPINDEX: ^GSPC) over the same period.
Nevertheless, encouraging signs in the company's core wireless services business, combined with a more positive outlook into 2025, provide a signal bar of hope that the stock could finally be on the cusp of a sustained rebound.
Is it time to dial in and buy Verizon stock now? Here's what you need to know.
An improved outlook for 2025
Verizon is navigating a significant transformation in the telecommunications industry. Traditional growth engines, such as mobile device sales, are facing a secular decline as consumers increasingly favor buying directly from brands like Apple. On the enterprise side, the company is selling less networking equipment due to the waning relevance of legacy wireline phone services. All this is in an intensely competitive landscape where peers like AT&T and T-Mobile have moved aggressively with pricing promotions.
For Verizon's last reported third quarter (for the period ended Sept. 30), total revenue was flat year over year, while adjusted earnings per share (EPS) was down 2.5% from the prior-year quarter. Even as these top- and bottom-line numbers don't inspire much confidence, investors focusing on them too much may be missing the bigger story.
A more favorable aspect was Verizon's 2.7% increase in wireless services revenue, underscoring its momentum in mobility and broadband through more premium offerings. The metric that stands out is the $139 in consumer wireless average revenue per account (ARPA), up 4.2% from Q3 2023. The increase reflects higher pricing and success in bundling several services, including accelerating demand for fixed wireless access (FWA). Verizon anticipates these trends to continue.
A key development in the third quarter was Verizon's announced acquisition of Frontier Communications. The deal is seen as strengthening Verizon's position in the broadband market, by leveraging Frontier's substantial fiber optic infrastructure to drive up more robust long-term growth.
Management has reaffirmed its commitment to paying down debt and supporting its dividend, which saw its 18th consecutive annual rate increase this year to a new quarterly rate of $0.6675 per share. On this point, Verizon's leverage ratio has declined compared to 2023, while the $14.5 billion in free cash flow generated through the first nine months of the year more than covers the $8.4 billion in dividends paid. That's a great sign that fundamentals are solid and Verizon's shareholder distribution is sustainable.