Verizon Drops 6.2% in Six Months: Should You Buy the Dip?

Verizon Communications Inc. VZ has dropped 6.2% in the last six months compared with the Wireless National industry’s decline of 9.4%. The stock has underperformed the Zacks Computer & Technology sector and the S&P 500 during the same time frame.

Shares of the company have outperformed its peers like AT&T Inc. T and T-Mobile US, Inc. TMUS. Shares of AT&T and T-Mobile have declined 7.9% and 11.7%, respectively, during this period.

VZ Plagued by Soft Demand in Business Segment, Stiff Competition

Net sales in the Verizon Business segment are plagued by soft demand in the enterprise and public sector business, induced by macroeconomic headwinds. In the third quarter, the company reported $7.14 billion in revenues from this segment, down 2.8% year over year. The figure also missed our estimate of $7.3 billion.

Moreover, Verizon faces stiff competition in each of its served markets from major telecom players such as AT&T, T-Mobile and Comcast. The companies are rapidly expanding their network infrastructure to boost their competitive edge. Intensifying competition with a fixed pool of customers in a highly saturated U.S. wireless market is weighing on the margin.

In a bid to expand its customer base, Verizon is spending heavily on promotion and is also offering lucrative discounts, which are weighing on margins. Verizon has announced a three-year price lock guarantee for all its myPlan and myHome network plans. This ensures that the core monthly plan price for calling, data and texting will not change in the next three-year period, excluding taxes, fees and perks. Although the customer-first strategy is designed to woo new customers and retain existing ones, it is likely to contract margins.

Fiber Expansion and Wireless Momentum Are Key Growth Drivers

Verizon witnessed solid momentum in the Consumer segment, backed by solid growth in wireless equipment and service businesses. In the third quarter, revenues increased 2.9% year over year to $26.1 billion. Its Wireless retail postpaid churn was 1.12%. The company delivered 306,000 broadband net additions in the quarter. 

Verizon is also rapidly expanding its fiber infrastructure nationwide. With the acquisition of Frontier Communications, VZ is set to integrate Frontier’s advanced fiber network within its Fios network. The expansion of VZ’s fiber assets is expected to significantly improve the customer churn rate.

VZ Gains From Growing User Base

Despite persistent weakness in the Business segment, Verizon has been taking several steps to reverse the declining trends in this segment. Verizon Business recently inked a deal with AWS. Per the deal, Verizon will provide high-capacity, low-latency fiber network infrastructure to AWS data centers. Recently, Verizon Business has completed the deployment of a 100G dedicated optical ring at Monumental Sports & Entertainment. Leading audit, tax and advisory firm KPMG has deployed Verizon 5G in its U.S. headquarters. These recent customer acquisitions indicate a potential turnaround phase for the Verizon Business segment.

Estimate Revision Trend of VZ

Earnings estimates for 2025 has remained unchanged over the past 60 days, while the same for 2026 has declined 0.81% to $4.89.

Key Valuation Metric of VZ

From a valuation standpoint, VZ appears to be trading relatively cheaper compared to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 8.52 forward earnings, lower than 12.25 for the industry.

End Note

Verizon’s top-line growth is affected by weakness in some end markets. An uncertain macro environment led to constrained spending in the enterprise and public sector verticals. This is affecting growth in the Business segment. Stiff competition from other major telecom operators is another concern.

However, Verizon is benefiting from solid wireless momentum and a healthy churn rate. The company’s fiber expansion strategy is expected to bring long-term benefits. Moreover, recent customer wins are expected to reverse the declining trends in the Verizon Business segment. 

With a Zacks Rank #3 (Hold), VZ appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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