Following the release of Verizon’s largely positive fourth-quarter results, a number of Wall Street analysts are offering a more positive outlook on the company’s prospects.
“Verizon reiterated that it expects to achieve positive wireless service revenue growth in the second half of F18 (excluding the accounting impact),” wrote the analysts at Scotiabank in a note issued this morning. “If VZ is able to grow service revenue in 2H/18, it will be the first time in any quarter since 2014 that they achieved this feat. The improvement in wireless service growth is being supported by continued subscriber growth and a return to ARPA expansion. Over the past three years, ARPA has been negatively impacted by the transition to EIP and the launch of unlimited plans putting pressure on service revenue. However, we expect VZ to be fully past these headwinds by the end of F18.”
Those analysts were not alone in their rosy outlook for the nation’s largest wireless network operator.
“Verizon’s third consecutive quarter of delivering better than expected wireless results lends further credibility to its network first, standalone service provider strategy,” wrote the analysts at Barclays in a note issued to investors yesterday. “While the benefits of recent tax reform was largely anticipated, we believe the carrier’s ability to translate its improved earnings and cash generation profile towards initiatives that yield a better growth outlook (vs. its 2018 guidance of low single digit top and bottom line growth) is the key to driving share appreciation of current levels.”
Other analysts, while noting Verizon’s solid performance in the fourth quarter, offered a tempered outlook considering some of the carrier’s major initiatives—such as its efforts in the media space and its 5G build-out work—continue to remain unproven.
“Results and guidance shows modest wireless momentum with margin expansion and we give VZ credit for playing adequate defense in a competitive wireless environment,” wrote the analysts at Cowen and Company in a note to investors yesterday. “That said, the carrier still lacks a growth catalyst as its compelling growth initiatives (Media, 5G, IoT) will still take many quarters to show constructive proof points. As such we remain comfortable on the sidelines.”
Others concurred.
“We maintain our Hold rating, reflecting a more tempered outlook on forward organic growth prospects,” wrote the analysts at Deutsche Bank Markets Research in a note to investors yesterday. “This reflects longer-term competitive risks in Wireless (given VZ’s size, we think it’s most susceptible to share loss to disruptive competitors), as well as newer growth avenues (ie: Oath, IOT, 5G) either too small or unproven to change our longer-term view.”
Nonetheless, the Scotiabank analysts said Verizon will likely face fewer challenges in the wireless market this year as compared with previous years. “Wireless competition risk remains but is much less significant than in 2017,” the analysts wrote. “Without a merger of T-Mobile and Sprint, the four-player market combined with high wireless and smartphone penetration is still not ideal long-term, in our view. However, both TMUS and S are now more focused on re-investment to sustain their abilities to operate as standalones and therefore are looking to preserve cash flow. We think this is a very different environment compared to 2015-2017 when both were looking to grow subscribers quickly to maximize their value prior to a proposed merger.”