Investing in stocks that have lagged against peers while they are in highly concentrated industries may not be a new thought. But reviewing some of these highly concentrated industries can uncover some overlooked diamonds in the rough. Verizon Communications, Inc. (NYSE: VZ) looks like it could be the best-positioned telecom and communications services stocks in 2025.
Investors need to keep in mind that Verizon has been dead-money for years. It has recovered some of the 2020 to 2023 losses, and now Verizon has to hope an outsized dividend, some low growth expectations in 2025 and an acquisition to drive “customer stickiness” can entice new investors.
Please note — this is not a recommendation to buy Verizon stock, nor is it a recommendation to sell its peers. What is worth looking into is if Verizon has the magic based on its underperformance and relative valuations to entice new shareholders to come back in 2025. That verdict has not yet been decided. And this is coming with the S&P 500 up over 27% and the Dow up over 18% YTD.
Oggonomics is evaluating several developments and looking back at 2024 to see where things have diverged between Verizon and its top two peers. There are of course many other cellphone and communications providers for broadband and voice/data services, but for traditional cell services these 3 have the lion share.
RELATIVE TO PEERS
T-Mobile US Inc. (NASDAQ: TMUS) has rallied 46% YTD with a mere 1.2% dividend yield, and AT&T Inc. (NYSE: T) has rallied 41% YTD with a 4.65% dividend yield — while Verizon Communications shares are up just 14% YTD and have a dividend yield that is above 6%.
Cheap valuations can attract some buyers. Verizon is valued at less than 10-times expected earnings. AT&T is valued at about 11-times earnings and T-Mobile is valued just over 20-times expected earnings.
According to a recent analyst review, Verizon is expected to grow revenues faster that rival AT&T in 2025. Is 2% sales growth and 3% earnings growth exciting enough? And then there is the hopeful acquisition-related boost thereafter.
While all carriers are aggressively pricing, most customers now know their pricing plans and if they want to jump ship then they may have jumped to another carrier already. Switching providers is not always a care-free process and consumers now generally expect to pay for their smartphones regardless of which carrier they are using.
ANALYST VALUATIONS
Verizon’s current $42.50 share price is valued less than its consensus analyst price targets. Finviz shows its consensus analyst target price at $46.81, and the NASDAQ trader site shows its consensus rounded up at $47 — with a range of $42 to $55 from its brokerage firm pool of 23 analysts. Oggonomics has tracked price targets from top brokerage firms and from independent research firms.
These are some of the top brokerage firm price targets tracked for Verizon since the summer:
- $47.00 from Scotiabank
- $44 from UBS
- $51 from TD Cowen
- $45 from JPMorgan
- $50 from Goldman Sachs
Two of the three independent research firms have high marks for Verizon as well. Morningstar sees its fair value at $53 per share, and the independent research firm Argus has a Buy rating and a $49 price target. CFRA (S&P) rates Verizon with a “Sell” rating, and its $33 price target is by far the lowest target among major brokerage firms and independent research firms.
INTEREST RATES ARE A DRAG
Telecoms have the same issue that can impact utilities stocks via the earnings drag created by long-term interest rates. They are heavy borrowers to fund those infrastructure purchases.
Verizon has a$180 billion market cap and has seen its interest expense rise from $3.5 billion from before the rate hike campaign rise up to $6.6 billion over the last 12-month period. Its total debt was about $175 billion at the end of 2023.
AT&T has a $170 billion market cap. AT&T has seen its interest expense remain more static from $6.7 billion to $6.8 billion, with $155 billion in total debt as of the end of 2023.
T-Mobile US has a market cap of $268 billion. It seen its interest expense remain somewhat static from $3.3 billion to $3.4 billion, with $113 billion in total debt as of the end of 2023.
THE ACQUISITION
Verizon is also looking to juice its fiber optic business with a $20 billion-plus acquisition of Frontier Communications to better compete for cord-cutters against AT&T and even Comcast and to increase “customer stickiness” as having more services all in one unified bill. This deal has already received Frontier shareholder approval, but it does have to clear regulatory hurdles and it may still be very deep into 2025 or early-2026 before reviews and integrations have been completed.
DISCLAIMER
Again, this is not a recommendation to buy Verizon nor a recommendation to sell any of its competitors. Oggonomics does not maintain any ratings or price targets on these companies. All formal ratings and price targets have been attributed to the firms mentioned by name. All investing decisions are the responsibility of each investor and those decisions should be made along with a financial advisor.
CHARTS
The following charts have been provided by StockChart.com with a 1-year timeframe and with 20-day and 50-day moving averages.
