Is There Value in Verizon Shares at These Levels?

September 06, 2022 at 08:00 AM EDT

Telecommunications and broadband provider Verizon (NYSE: VZ) shares have not only fallen below its 2020 pandemic lows but also its seven-year lows trading down (-21%) for the year. The Company is posting modest growth but has yet to reap the windfall of its 5G strategy. Inflationary headwinds are affecting consumer spending behavior and impacting its gross adds. It’s currently trying to buildout its C-Band spectrum against T-Mobile (NASDAQ: TMUS) while facing challenges from its age old rival AT&T (NYSE: T), which shed its Warnermedia unit to Discovery to form Warner Brothers Discovery (NYSE: WBD). Verizon added 135 million point-of-presence (POPs) covered by C-Band in its way to at least 175 million POPs by year’s end to expand the service to an additional 30 markets. C-Band usage is up 233% and millimeter wave traffic rose 49% year-to-date. C-Band accounts for more than a third of total traffic where its deployed. Shareholders are seeing their dividend yield grow north of 6% at the cost of an eroding stock price. The Company is still very profitable while growth has slowed to a crawl. E-commerce, digital migration, remote work and learning, and streaming content continue to drive wireless traffic. The Company expects momentum to pick up in the second half of 2022 into 2023.

Earnings Miss

On July 22, 2022, Verizon released its fiscal second-quarter 2022 results for the quarter ending June 2022. The Company reported an earnings-per-share (EPS) profit of $1.31 excluding non-recurring items versus consensus analyst estimates for $1.32, missing estimates by (-$0.01). Revenues rose 0.1% year-over-year (YoY) to $33.79 billion beating analyst estimates for $33.7 billion. The Company added 514,000 retail post paid customers and 12,000 postpaid phone net additions. Total retail postpaid churn was 1.03% and retail postpaid phone churn was 0.81%.

Downside Guidance

Verizon lowered full-year 2022 EPS to come in between $5.10 to $5.25, down from original estimates of $5.40 to $5.55 versus consensus analyst estimates of $5.35. It expects wireless service revenues to grow 8.5% to 9.5%. Reported service and other revenue growth is expected (-1%) to flat. Adjusted EBITDA growth of (-1.5%) to flat, down from earlier 2% to 3% EBITDA growth estimates.

Is There Value in Verizon Shares at These Levels?

Here’s What the Charts Have to Say

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for VZ stock. The weekly rifle chart inverse pup breakdown triggered on the breakdown below the $50.78 Fibonacci (fib) level. The 2020 pandemic lows of $48.84 were broken as shares continue to plunge as the weekly 5-period moving average (MA) resistance falls at $43.81 followed by the 15-period MA at $47.73. The weekly lower Bollinger Bands (BBs) sit at $39.72 as the weekly stochastic form another mini inverse pup under the 20-band. The weekly 50-period MA is falling at $50.89. The weekly market structure low (MSL) buy triggers on a breakout through the $44.53 level. The daily rifle chart downtrend has a falling 5-period MA at $42.16 followed by the 15-period MA at $43.62 with lower daily BBs at $40.62. The daily stochastic is very oversold as it hovers near the 3-band. Attractive pullback levels on this ugly stock sit at the $40.20 fib, $38.30 fib, $37.50, $36.09 fib, and $34.04 fib level.

Conference Call Takeaways

CEO Hans Vestburg admitted right off the bat the Company was not satisfied with its Q2 performance and is aware of what the issues are. He assured listener that the Company is already working to reaccelerate in the second half of the year. He blamed macroeconomic factors like inflation for causing the material weakness in its gross adds. Verizon launched its Welcome Unlimited plan to accommodate budget-conscious consumers without device subsidies. The Company also took pricing actions to mitigate inflationary headwinds. He expects the second half of 2022 into 2023 to see momentum resume. They are seeing good results of the Mix and Match plan promotions in the quarter resulting in 78% of its consumer base on unlimited plans and 39% on premium unlimited. The integration of TracFone is on track providing consumers with another option for their wireless communications needs. The Company saw 32% growth in fixed wireless net adds in the quarter driven by the 50% increase in its Consumer Group. The Business Group added 430,000 net clients in the quarter. Customers are getting equipped for 5G with 47% of its customers already equipped and growing towards 60% by year’s end. The Company has reached a tentative deal with its unions to extend the collective bargaining agreement, which should provide for labor stability for the next four years.