Converged Mobility And Fiber Expansion Will Reshape Long Term Telecom Connectivity

Catalysts

About Verizon Communications

Verizon Communications is a large U.S. telecom operator providing wireless mobility, broadband, and related connectivity services to consumers and businesses.

What are the underlying business or industry changes driving this perspective?

• Planned convergence of mobility and fiber broadband, including the pending Frontier acquisition and the Tillman build partnership, creates a wider addressable base for bundled offerings. Management links this to lower churn and cross sell potential, which directly targets higher revenue and more resilient margins.
• Rapid growth in broadband subscribers, including over 13.2 million total broadband customers with 5.4 million fixed wireless access lines and rising Fios demand, positions Verizon to capture ongoing shifts toward higher speed home and business connectivity. This supports recurring revenue and cash flow.
• Management’s explicit focus on customer centric growth, including lower churn through better value propositions, perks, and simplified experiences, is aimed at improving lifetime value per account. This can support wireless service revenue and earnings without relying heavily on broad price increases.
• Company wide cost transformation and portfolio pruning, with a stated intent to exit or shrink loss making legacy activities and run a leaner operation, is aimed at funding growth investments from operating expense savings and expanding adjusted EBITDA margins and free cash flow.
• Investment in AI to personalize offers, predict churn, automate service, and streamline internal processes is expected to touch most parts of the business. This offers a structural way to raise revenue per user while lowering support and operating costs and supporting earnings growth.

Assumptions

This narrative explores a more optimistic perspective on Verizon Communications compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Verizon Communications's revenue will grow by 3.2% annually over the next 3 years.
• The bullish analysts are assuming Verizon Communications's profit margins will remain the same at 14.4% over the next 3 years.
• The bullish analysts expect earnings to reach $21.7 billion (and earnings per share of $5.11) by about January 2029, up from $19.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 14.7x on those 2029 earnings, up from 8.3x today. This future PE is greater than the current PE for the GB Telecom industry at 9.6x.
• The bullish analysts expect the number of shares outstanding to grow by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.51%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Verizon is already seeing postpaid phone net losses, as churn of 0.91% fully offset 8.4% gross add growth and led to a loss of 7,000 postpaid phone customers in the quarter. If this pattern persists in a mature U.S. wireless market, it could cap or reduce subscriber volumes and limit long term revenue growth and earnings expansion.
• Management openly acknowledges that recent financial progress has leaned heavily on price increases rather than subscriber growth. If price led tactics continue to drive higher churn or weaken perceived value, customer losses could pressure wireless service revenue, squeeze net margins and slow adjusted EPS growth.
• The business is taking on multiple large projects at once, including integrating Frontier, expanding fiber via both Frontier and Tillman, acquiring Starry and pushing fixed wireless access. If execution missteps or cost overruns occur on any of these, the result could be higher operating expenses, lower free cash flow and weaker net margins than targeted.
• Management plans to fund a customer experience overhaul and broader marketing push through aggressive cost cuts and exiting legacy activities. If these reductions are harder to achieve or disrupt service quality, Verizon could face customer dissatisfaction, higher churn and lower revenue and earnings than management intends.
• The company is tying a lot of its future to convergence and AI driven personalization at a time when competitors are also investing heavily. If rivals match or outdo Verizon on bundles, value propositions or technology, Verizon may struggle to gain share of industry net adds, which could constrain long term revenue growth and limit any improvement in net margins and EPS.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Verizon Communications is $59.01, which represents up to two standard deviations above the consensus price target of $47.31. This valuation is based on what can be assumed as the expectations of Verizon Communications's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.0, and the most bearish reporting a price target of just $40.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $151.1 billion, earnings will come to $21.7 billion, and it would be trading on a PE ratio of 14.7x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $38.91, the analyst price target of $59.01 is 34.1% 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.