Fiber And C-Band Convergence Will Redefine Consumer Connectivity

Key Takeaways

• Strategic focus on network convergence and consumer retention aims to boost subscriber growth, reduce churn, and enhance customer loyalty for long-term revenue gains.
  
• New revenue streams in private networks and AI solutions are expected to diversify income and unlock further earnings potential.
  
• Intense competition, regulatory challenges, and economic pressures threaten Verizon's margins, revenue growth, and subscriber retention in an uncertain macroeconomic environment.

Catalysts

Through its subsidiaries, engages in the provision of communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide.

• Verizon's strategic focus on convergence through the expansion of C-Band and fixed wireless access, alongside fiber, is expected to boost subscriber growth and improve ARPU, impacting long-term revenue positively.
  
• The company's focus on consumer retention strategies, such as the three-year price lock and free phone guarantee, is designed to stabilize churn rates and enhance customer loyalty, positively affecting net margins by reducing churn-related costs.
  
• Verizon's multiyear Consumer transformation, including brand refresh and myPlan offerings, is driving higher average revenue per user (ARPU) and stronger gross adds momentum, expected to support future revenue growth.
  
• The continued rollout of Verizon's fiber network, including the pending acquisition of Frontier and targeted expansion of Fios, is anticipated to enhance broadband subscriber growth and provide a stable revenue stream over the long term.
  
• Expansion into new revenue streams, such as private networks and AI Connect solutions, is set to unlock additional earnings potential and diversify revenue sources beyond traditional wireless and broadband services.

Verizon Communications Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Verizon Communications's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.1% today to 15.3% in 3 years time.
• Analysts expect earnings to reach $21.7 billion (and earnings per share of $5.16) by about April 2028, up from $17.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.2x on those 2028 earnings, up from 10.2x today. This future PE is lower than the current PE for the GB Telecom industry at 13.0x.
• Analysts expect the number of shares outstanding to grow by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Verizon Communications Future Earnings Per Share Growth

Risks

• The ongoing tariff environment presents uncertainty, especially regarding handsets and telecom equipment, which could increase costs and impact profits if absorbed by Verizon, or potentially reduce sales if passed onto consumers. This affects revenue and margins.
  
• Elevated churn rates, driven by recent price adjustments and heightened competition, pose risks to maintaining subscriber numbers, which could negatively impact revenue growth and customer retention efforts.
  
• Pressure from federal government accounts and elevated churn, particularly in the Business segment, could lead to a decline in business phone net additions, thereby affecting service revenue.
  
• Competitive intensity in the wireless market could lead to increased promotional costs and pressure on pricing, potentially affecting gross margins and net income.
  
• The macroeconomic environment, including declining consumer confidence and potential changes in consumer behavior towards upgrades and trade-ins, could impact both revenue and the ability to meet long-term growth targets.

Valuation

• The analysts have a consensus price target of $48.024 for Verizon Communications based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $55.0, and the most bearish reporting a price target of just $42.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $142.2 billion, earnings will come to $21.7 billion, and it would be trading on a PE ratio of 11.2x, assuming you use a discount rate of 6.2%.
• Given the current share price of $42.95, the analyst price target of $48.02 is 10.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.