Verizon Communications Posts Better-Than-Expected Q3 Earnings; Target Price $63

Verizon Communications Inc, a major U.S. telecommunications service provider, reported a better-than-expected profit in the third quarter, largely driven by solid demand for internet services and phones as most people worked remotely amid the COVID-19 pandemic.

Verizon reported EPS of $1.05, compared with $1.25 in third-quarter 2019. On an adjusted basis (non-GAAP), third-quarter 2020 EPS, excluding a special item, was $1.25, compared with adjusted EPS of $1.25 in third-quarter 2019. That higher than the market consensus of $1.22.

The company estimates that third-quarter 2020 EPS and adjusted EPS included about negative 5 cents of COVID-19-related net impacts. Total consolidated operating revenues in third-quarter 2020 fell 4.1% to $31.5 billion. This decline was due to lower customer activity and the timing of certain device launches.

Revenue in Verizon’s media unit, which includes TechCrunch, Yahoo and HuffPost, plunged 7.4% to $1.7 billion, but an increase of 21.2% from second-quarter 2020.

The company forecasts 2020 adjusted EPS growth of 0%-2%, improved from the previous prediction of -2% to 2%. Total wireless service revenue is expected to grow at least 2% in fourth-quarter 2020 compared to last year.

At the time of writing, Verizon Communications shares traded 0.17% lower at $57.15 on Wednesday; the stock is down about 7% so far this year.

Verizon Communications Stock Price Forecast

Eleven equity analysts forecast the average price in 12 months at $63.20 with a high forecast of $70.00 and a low forecast of $57.00. The average price target represents a 10.51% increase from the last price of $57.19. From those 11 equity analysts, five rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $60 with a high of $71 under a bull scenario and $42 under the worst-case scenario. Bernstein raised their stock price forecast to $63 from $60. Royal Bank of Canada reiterated a “hold” rating and set a $57 target price on shares of Verizon Communications.

Several other analysts have also recently commented on the stock. Credit Suisse Group reiterated a “hold” rating and set a $61 target price on shares of Verizon Communications. Oppenheimer started coverage and set a “buy” rating and a $70 price objective on the stock. Argus upgraded shares from a “hold” rating to a “buy” rating and set a $68 price objective.

Analyst Comments

“Attractive business mix, as the wireless market leader. Wireless service revenue 70% of consolidated revenue, and wireless EBITDA ~85% of consolidated EBITDA. Dividend yield and potential buybacks provide some support, while the transition to 5G creates opportunities and risks, with mid-band spectrum needs in focus,” said Simon Flannery, equity analyst at Morgan Stanley.

Upside and Downside Risks

Upside: 1) Continued strength in wireless. 2) Rates remain lower for longer. 3) Defensive market. 4) Developments around mobile video, and internet of things – highlighted by Morgan Stanley.

Downside: 1) Rising interest rates make the dividend yield less attractive. 2) Competitive price pressure from wireless competitors. 3) Wireline business faces significant secular pressures. 4) Spectrum spend/M&A pressure Balance Sheet metrics.

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