“The problems aren't limited to narrative” when it comes to Verizon Communications Inc., according to Wolfe Research analyst Peter Supino.
However, he upgraded the stock to outperform peers late Wednesday, writing that he and his team “really like” the balance between risk and reward.
Supino admitted that telecom investors have enjoyed a rough ride recently: “In 2023, only one of the big three telecom companies had a return on capital greater than its revenues.” [average] Cost of capital.” That was Verizon VZ,
But investors who bought Verizon and AT&T five years ago would have lost money, even when taking earnings into account.
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But he likes the image now, cheering the “underappreciated economics of the stable industry.” This backdrop gives him more confidence that Verizon will see a reduction in capex and leverage. Meanwhile, sales growth could improve, and the consensus view for 2024 is also on the rise.
In Supino's view, “the industry's glass seems half full.” Concerns about competition in the industry weren't as bad as Verizon's stock narrative might lead you to believe, he wrote, while carriers found it easier to manage promotions financially, in part because of the industry's decline.
Verizon's single story sounds attractive to him, too. “At the company level [Verizon] Delivers solid deleveraging trend, signs of improving execution, and 67% of revenue in growing business (wireless and fiber/[fixed wireless access] Broadband.” The company is expected to improve its total adds and average revenue per user in the coming quarters.
Supino joins KeyBanc Capital Markets analyst Brandon Nispel, who turned bullish on the stock earlier in the week.
Verizon shares closed up 0.5% in Thursday's session.
