Source: PaxForex Premium Analytics Portal, Fundamental Insight
Telecom giant Verizon Communications navigated a tumultuous year, mirrored by fluctuations in its stock price. With shares hovering below $40 for a substantial part of 2023, hitting a low of $30.14 in October, recent months have seen a resurgence, culminating in a 52-week high of $43.21 in January. The stock has since experienced a decline, prompting the question: Is now the opportune moment to invest in Verizon?
Before making any investment decisions, a closer look at Verizon's current status is imperative, especially considering the stock's roller-coaster performance over the past year. This analysis will provide insights into whether Verizon is a viable investment option for 2024 and beyond.
One factor contributing to Verizon's stock challenges in the previous year is a decline in revenue compared to 2022. In 2023, the company recorded $134 billion in sales, marking a 2% decrease from the preceding year.
A significant driver of this revenue drop was three consecutive quarters of declines in postpaid phone subscriptions within Verizon's consumer division - the most valuable customers in the telecom industry. Consequently, the consumer segment witnessed a 1.8% year-over-year decrease in sales, amounting to $101.6 billion for 2023. Given that the consumer division constituted 76% of Verizon's revenue in 2023, its performance is integral to the company's overall success.
Despite these challenges, there is a silver lining in Verizon's business segment. This division exhibited consistent growth in postpaid phone subscriptions across several quarters, serving as a positive indicator amidst the broader challenges.
In the fourth quarter, Verizon successfully reversed the trend in consumer postpaid phone net losses, achieving a notable 318,000 net additions - an impressive turnaround from the rest of the year. This performance marked a substantial increase from the 41,000 net adds in the fourth quarter of 2022, leading to a boost in the company's share price following the release of Q4 earnings.
The impressive increase in consumer postpaid phone net adds contributed to Verizon's wireless service revenue reaching $19.4 billion for the quarter, showing a robust growth of 3.2% over the prior year. The company anticipates continued growth in wireless service revenue throughout 2024, forecasting a year-over-year increase of at least 2%.
Verizon attributes the turnaround in consumer postpaid phone subscriptions to successful initiatives, such as the myPlan program, allowing consumers to customize mobile phone plans with a la carte features, including streaming services. Additionally, the growth in internet services, particularly through the powerful 5G network providing fixed wireless capabilities, played a significant role in the positive trajectory.
Fixed wireless internet not only contributes to broadband revenue but also aids in expanding customers in Verizon's crucial consumer division. Broadband adoption is rapidly increasing, with the fifth consecutive quarter of over 400,000 net additions to its internet service in Q4. The growth in fixed wireless subscribers reached over three million, representing a 31% increase over 2022.
Another key factor when evaluating Verizon stock is its strong free cash flow (FCF), indicating the company's ability to support its high-yield dividend, currently exceeding 6%. In 2023, FCF reached $18.7 billion, up from $14.1 billion in 2022. Verizon's ability to increase its dividend for the 17th consecutive year underscores its financial strength.
The positive momentum in 2023 can be attributed, in part, to a change in executive leadership last March, with Sowmyanarayan Sampath taking over Verizon's consumer division. The gradual improvement in consumer postpaid net additions each quarter suggests that these management changes have positively impacted the company.
With a rise in FCF, continued strength in wireless service revenue, and a positive outlook for the year, Verizon appears to be on an upswing in 2024. This makes Verizon stock an attractive investment, and the high-yield dividend, coupled with a lengthy streak of increases, presents an opportunity for long-term investors to collect passive income.
As long as the price is above 39.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 39.97
- Take Profit 1: 43.00
- Take Profit 2: 46.00
Alternative scenario:
If the level of 39.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 39.00
- Take Profit 1: 37.00
- Take Profit 2: 35.00
