Verizon isn’t being appreciated by Wall Street, report argues

Morgan Stanley Research predicts Verizon will lose 83,000 postpaid phone net customer additions in the first quarter. (Morgan Stanley Research)

According to a new report by Wall Street research firm Barclays, Verizon’s prospects are looking up, and investors aren’t appreciating the company’s solid footing and growing options.

“Current valuation levels seem to overly discount any number of factors that could improve its earnings trajectory (i.e. service revenue recovery and its 10 x 4 cost reduction plan) as well as penalizing the company for increased 5G investments despite the fact that the technology is working better than expected,” the analysts wrote in a report issued to investors today. “Moreover, its cash generation capabilities, dividend coverage and ability to de-lever are all on sustainably better footing. While we expect Verizon’s capital intensity to increase beginning next year, the company has made a credible case that a multiuse architecture improves return characteristics for every dollar invested.”

To be clear, though, the analysts aren’t expecting many fireworks from Verizon’s first quarter earnings report, scheduled to be released tomorrow. Specifically, the firm said it expects the carrier to lose around 50,000 phone customers during the quarter.

That figure largely aligns with expectations from Wall Street analysis firm Morgan Stanley Research. In a report issued today, the firm said it expects Verizon to report the loss of 83,000 postpaid phone net customer additions – the worst figure among the four nationwide wireless operators. (Morgan Stanley predicts AT&T will lose 70,000 postpaid phone customers, Sprint will lose 12,000 and T-Mobile will gain 461,000.)

Nonetheless, the analysts at Barclays pointed to a number of trends that they argue favor Verizon. First, the firm noted to Verizon’s promise to return to service revenue growth, a goal they said would likely be aided by the relatively quiet competitive landscape. “An expectation that pricing trends will remain at relatively stable levels are also behind the assumption for improving year-over-year wireless service revenue trends,” the Barclays analysts wrote.

The firm also said Verizon could benefit from the rise of cable operators in the wireless industry, considering Verizon’s network powers Comcast’s Xfinity Mobile offering and is expected to run Charter’s forthcoming Spectrum Mobile MVNO, scheduled to launch this summer.

“The activation of the MVNO on Verizon’s network allows for a new stream of high margin revenues for the carrier,” they noted.

The Barclays analysts also pointed to Verizon’s efforts to cut costs from its business; the carrier has set a goal of reducing expenses by $10 billion by 2021 through a variety of mechanisms, including the deployment of new, less expensive software and services.

Finally, the Barclays analysts also argue that Verizon’s position in 5G is underappreciated.

“Verizon believes that the combination of: 1) time to market advantage, 2) the ability to leverage existing infrastructure investments (i.e. multiuse fiber, small cells, etc.), and 3) technological leadership puts it in a prime position to disrupt the residential broadband market,” the analysts pointed out, arguing that Verizon’s 5G position could well allow the company to cash in on an early move by customers to the technology.