KeyBanc made adjustments to its outlook on Verizon Communications (NYSE:VZ), reducing the price target to $44 from the previous $46 while keeping an Overweight rating on the stock. The adjustment follows Verizon's recent announcement of the FYBR acquisition, which has led to a reassessment of the company's valuation multiple.
The firm acknowledges the improvement in Verizon's key performance indicators and business fundamentals but notes that the anticipated bull case for capital returns through buybacks is unlikely to materialize until 2027-2028. The acquisition of FYBR is seen as a questionable use of capital because it is expected to dilute free cash flow, earnings per share, and leverage while offering only a slight boost to growth.
The analyst from KeyBanc points out that Verizon's current buyback yield and dividend yield might provide a higher return on invested capital compared to the FYBR acquisition, especially given FYBR's valuation. The analyst also highlights that Verizon must now demonstrate the financial benefits of its strategy to bundle mobile and broadband services, a process that is expected to take several years.
Meanwhile, investors have the option to invest in AT&T, which is currently trading at a discount and carries lower leverage than Verizon's projected post-acquisition financials.
In other recent news, Verizon Communications has been in the spotlight for its financial performance and strategic moves. The company reported a steady increase in its Q2 2024 financial performance, with a 3.5% year-over-year increase in wireless service revenue, contributing to a total consolidated revenue of $32.8 billion.
Adjusted EBITDA for the same quarter rose to $12.3 billion, marking a 2.8% increase from the previous year.
Verizon has also confirmed its guidance for 2024 and announced an increase in its quarterly dividend. Furthermore, the company has announced its plans to acquire Frontier Communications (OTC:FTRCQ) in a $20 billion all-cash transaction, aimed at expanding its fiber optic network.
This acquisition is expected to finalize within 18 months and contribute positively to Verizon's revenue and adjusted earnings.
Analysts from Citi and TD Cowen have maintained their Buy ratings for Verizon, highlighting the company's readiness for Generation AI fiber deals and the completion of C-Band spectrum deployment by the end of 2025.
InvestingPro Insights
As Verizon Communications (NYSE:VZ) navigates the waters post-FYBR acquisition, it's important to consider the company's financial health and market sentiment. According to InvestingPro data, Verizon holds a market capitalization of approximately $173.64 billion, with a P/E ratio of 15.48, reflecting a valuation that considers its stable earnings history. The adjusted P/E ratio for the last twelve months as of Q2 2024 stands at a lower 10.17, suggesting a potentially more attractive valuation in the context of its historical earnings.
InvestingPro Tips highlight that Verizon has consistently rewarded shareholders, raising its dividend for 20 consecutive years and maintaining dividend payments for 41 consecutive years. This commitment to shareholder returns is further evidenced by a substantial dividend yield of 6.44%. Furthermore, Verizon's stock is characterized by low price volatility, which may appeal to investors looking for stable investment options in the Diversified Telecommunication Services industry.
While 10 analysts have revised their earnings downwards for the upcoming period, it is noteworthy that Verizon is trading near its 52-week high, with the price at 95.28% of this peak. This could indicate that the market is recognizing the company's profitability over the last twelve months and its status as a prominent player in its industry. For investors seeking a deeper dive into Verizon's prospects, InvestingPro offers additional insights, with a total of 11 tips available on their platform.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.