Revitalizing Customer Engagement And Leveraging Tech Innovations To Propel Growth

Key Takeaways

• Enhanced customer engagement through personalized offerings and brand refresh aims to boost revenue growth and loyalty in the wireless segment.
  
• Strategic investments in new technologies and B2B relationships are anticipated to improve operational efficiency, customer service, and net margins.
  
• Intense competition and high capital expenditure, along with reliance on new services and external shifts, could challenge Verizon's growth and financial performance.

Catalysts

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

• The comprehensive brand refresh and personalized offerings like myPlan and myHome indicate a drive toward enhancing customer engagement and loyalty, which is expected to positively impact wireless service revenue growth.
  
• Introduction of Verizon Business Complete showcases a focus on expanding and strengthening B2B customer relationships, potentially improving both revenue and net margin in the business segment.
  
• The focus on expanding C-band and enhancing network performance, especially in suburban and rural areas, may lead to better service quality and customer retention, impacting both revenue and lower churn rates.
  
• Partnerships for extending content offerings, such as YouTube Premium and Peacock subscriptions, could enhance the value proposition for customers, contributing to revenue growth through increased adoption and usage rates.
  
• Investments in AI and mobile edge computing capabilities highlight a strategic move towards leveraging new technology to improve operational efficiency and customer service, expected to positively impact net margins through cost reductions and potentially opening new revenue streams.

Assumptions

• Analysts are assuming Verizon Communications's revenue will grow by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.4% today to 14.8% in 3 years time.
• Analysts expect earnings to reach $20.8 billion (and earnings per share of $4.95) by about September 2027, up from $11.3 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 11.1x on those 2027 earnings, down from 15.4x today. This future PE is lower than the current PE for the GB Telecom industry at 18.8x.
• Analysts expect the number of shares outstanding to grow by 0.13% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 5.8%, as per the Simply Wall St company report.

Risks

• Intensified competition in the wireless and broadband markets could pressure Verizon’s ability to grow its customer base and maintain premium pricing, affecting revenue and net margins.
  
• The high level of investment needed for C-band network expansion and 5G deployment requires significant capital expenditure, impacting free cash flow.
  
• Risks associated with the voluntary separation program and ongoing cost efficiency programs, if they fail to meet expectations, could affect net margins and EBITDA growth.
  
• Significant reliance on the success of new service offerings like myPlan and Verizon Business Complete to drive customer growth and retention might not yield anticipated results, impacting service revenue.
  
• The impact of external factors like changes in consumer behavior, regulatory challenges, and technological shifts toward AI and mobile edge computing capabilities could affect the company’s ability to meet its financial guidance, potentially impacting earnings.

Valuation

• The analysts have a consensus price target of $46.37 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 $38.76.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $140.8 billion, earnings will come to $20.8 billion, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 5.8%.
• Given the current share price of $41.15, the analyst's price target of $46.37 is 11.3% 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.