Oppenheimer reverses to upgrade Verizon as subscriber base improves

Oct. 06, 2022 2:11 PM ETVerizon Communications Inc. (VZ), T, TMUS, DISHVOD, BCE, TEF, TU, RCIBy: Jason Aycock, SA News Editor42 Comments

Verizon Wireless Retail Location. Verizon delivers wireless, high-capacity fiber optics and 5G communications.

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Oppenheimer has boosted Verizon stock (NYSE:VZ) to Outperform, citing its key catalyst as the improvement in subscriber base numbers.

"After almost two years, we're getting constructive on Verizon again," analyst Tim Horan said in reversing a downgrade the firm posted in February 2021 then based on what he said was overpayment for spectrum and 5G builds, "which led to customer defections, weaker balance sheet, and substantial capex investment."

"These factors are now reversing with network quality greatly improving, (fixed wireless) and even cable wholesale revenue growth, price increases, and lower capex enabling strong cash flow that should delever B/S back to the mid-to-low 2x range," he says now.

The company is gradually catching up to T-Mobile (NASDAQ:TMUS) in terms of 5G network performance and capability, Horan said.

The key catalyst is "gradual stabilization-to-growth of its subscriber base" even amid some volatile near-term trends, though strong free cash flow growth of 15% per year (now that Verizon has passed peak investment and leverage) should be supportive as well.

Finally, he notes, "the price is right" after some years of underperformance: Verizon has a price multiple of 7.5x 2023 earnings (a "55% discount to the market multiple") and the attractive 6.6% dividend yield with a "manageable" 50% payout.

He's set a $50 price target, implying 31% upside in Verizon stock.

The telecom services space is a notable underperformer among Communication Services stocks Thursday: Verizon (VZ) is down 3.3%, while AT&T (NYSE:T) is down 3.2% and T-Mobile (TMUS) down 0.9%. Nascent fourth nationwide wireless network Dish Network (NASDAQ:DISH) is up 0.3%. Foreign telecoms are losers in U.S. trading as well: BCE -2.8%; Telus (TU) -2.7%; Vodafone (VOD) -2.1%; Rogers Communications (RCI) -2.9%; Telefónica (TEF) -2%.

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