On Wednesday, Scotiabank adjusted its outlook on Verizon Communications (NYSE:VZ), reducing the stock's price target to $47.00 from the previous target of $47.25, while maintaining a Sector Perform rating. The revision follows Verizon's third-quarter earnings report, which aligned with both Scotiabank's and the wider market consensus. Verizon's total revenue remained steady year-over-year at $33.3 billion, slightly below the $33.6 billion Scotiabank and the $33.4 billion market consensus had anticipated.
The report showed that the flat revenue was due to reduced wireless equipment sales as customer upgrade volumes declined. This downturn in equipment revenue was partly counterbalanced by an increase in wireless service revenue. Verizon's total adjusted EBITDA for the quarter was reported at $12.5 billion, marking a 2.5% increase from the previous year, which was in line with the $12.4 billion forecast by both Scotiabank and the consensus.
Verizon's consumer postpaid phone net additions turned positive, recording a gain of approximately 81,000 customers, about 60,000 of which were attributed to second-line additions. However, Scotiabank noted that Verizon's management needs to prove the durability of this positive trend for several more quarters, especially since the recent growth has been partly supported by the second-line additions that also boosted the second and third quarters.
An unexpected development in the report was an increase in the forecast for capital expenditures (capex) for the fiscal year 2025 by $750 million compared to the previous year, which was not anticipated by Scotiabank. This adjustment suggests that while free cash flow (FCF) levels are healthy, there might not be growth in FCF next year. Despite these factors, Scotiabank reaffirmed its Sector Perform rating on Verizon's shares.
In other recent news, Verizon Communications Inc (NYSE:VZ). has reported a record EBITDA of $12.5 billion in its third-quarter earnings call, marking robust growth for the company. The telecommunications giant also noted a 2.7% increase in wireless service revenue, alongside a significant addition of 239,000 net postpaid subscribers.
The company's recent developments include a strategic focus on expanding its broadband reach, targeting over 100 million households with a blend of fixed wireless access and fiber solutions. Verizon also plans to double its fixed wireless access subscribers by 2028, with a current broadband customer base of 11.9 million.
In addition, Verizon is investing heavily in AI and mobile edge compute capabilities, aiming for sustainable growth in service revenue, EBITDA, and cash flow. However, potential headwinds for free cash flow in 2024 are anticipated due to increased cash taxes and capital expenditures.
Analysts from various firms noted Verizon's strategic positioning for sustainable growth through innovative services and strategic investments. They also highlighted the company's seven consecutive quarters of year-on-year growth in its postpaid business, suggesting a successful marketing and distribution strategy.
InvestingPro Insights
Verizon's recent financial performance and Scotiabank's analysis can be further contextualized with real-time data from InvestingPro. As of the latest available data, Verizon boasts a substantial market capitalization of $174.7 billion, underscoring its position as a major player in the telecommunications industry. The company's P/E ratio (adjusted) stands at 11.08, suggesting that the stock may be undervalued relative to its earnings.
One of the most notable aspects of Verizon's financial profile is its dividend policy. InvestingPro Tips highlight that Verizon has maintained dividend payments for an impressive 41 consecutive years and has raised its dividend for 20 consecutive years. This commitment to shareholder returns is further evidenced by the current dividend yield of 6.53%, which is significantly higher than many of its peers in the S&P 500.
Despite the challenges mentioned in the earnings report, such as reduced wireless equipment sales, InvestingPro data shows that Verizon remains profitable, with a revenue of $134.24 billion over the last twelve months as of Q3 2024. The company's ability to generate substantial cash flow is reflected in its high shareholder yield, another key InvestingPro Tip.
For investors seeking a more comprehensive analysis, InvestingPro offers additional insights, with 7 more tips available for Verizon. These tips could provide valuable context for understanding the company's financial health and future prospects, especially in light of the recent earnings report and analyst adjustments.
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