SA Asks: What's next for Verizon Communications?

[April 18, 2018 - New York City, USA. Verizon store located in Manhattan.]
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Verizon (NYSE:VZ [https://seekingalpha.com/symbol/VZ]) has had an action-packed week, beginning with an announcement on Monday that it has appointed independent board member and former PayPal (PYPL [https://seekingalpha.com/symbol/PYPL]) CEO Dan Schulman as its new chief executive, succeeding Hans Vestberg.

News of the CEO succession was greeted coolly on Wall Street, however, with shares of the telecommunications giant closing 5% lower on Monday. The stock continued to lose ground in subsequent sessions, finishing the week nearly 9% lower than the prior Friday's close, despite the company announcing its acquisition of broadband provider Starry and a broadband access deal with AST SpaceMobile (ASTS [https://seekingalpha.com/symbol/ASTS]).

We asked Seeking Alpha analysts Summit Research [https://seekingalpha.com/author/summit-research] and Daniel Jones [https://seekingalpha.com/author/daniel-jones] WHAT THEY THOUGHT LAY AHEAD FOR VERIZON.

Summit Research [https://seekingalpha.com/author/summit-research]: While new management can sometimes unlock synergies, the sudden handoff from Hans Vestberg implies Verizon’s (NYSE:VZ [https://seekingalpha.com/symbol/VZ]) acknowledgement of entrenched market share loss to intensifying competition and mounting ROI compression risks on its previous 5G capex cycle, now layered with additional AI investments.

Whether new CEO Dan Schulman can reverse the trajectory also remains to be seen. The ex-CEO of PayPal was criticized for his inability to arrest the company’s extended slowdown, which was burdened by his overly aggressive investment strategy.

As a result, not only does Schulman have a lot to prove stepping into his new role, but Verizon’s execution credibility is also on the line. Investors will likely remain focused on whether Verizon can defend its market leadership and maintain profitable growth; the leadership change is unlikely to be a major near-term catalyst for the stock.

Daniel Jones [https://seekingalpha.com/author/daniel-jones]: At this point in time, I firmly believe that Verizon Communications (VZ [https://seekingalpha.com/symbol/VZ]) is one of the most compelling telecommunications companies out there. Back in April of this year, I upgraded the company from a ‘buy’ to a ‘strong buy’ after it became cheaper than rival AT&T (T [https://seekingalpha.com/symbol/T]), which I have owned for a while now. At that time, I called it a top-tier prospect. And I still believe that to this day.

As earnings near, shares of the company are incredibly cheap. Leverage is also in check, coming in lower than what AT&T (T [https://seekingalpha.com/symbol/T]) has at the moment. This year, management expects some growth for the company, with EBITDA expected to expand by between 2.5% and 3.5%.

Management has also had some interesting wins as of late. As I detailed in an article published on October 8th, the company struck up a deal with AST SpaceMobile (ASTS [https://seekingalpha.com/symbol/ASTS]) whereby it will launch direct-to-satellite connectivity services across the continental U.S. Today, this will be a rather small market opportunity for the firm, mostly bringing in incremental revenue. But it could open the door to international expansion, where an estimated 3.4 billion people are not subscribed to any cellular broadband service and the other 5.6 billion people in the world move in and out of coverage throughout their days.

The company also announced, on October 8th, that it purchased a small broadband Internet provider by the name of Starry for an undisclosed sum. This will empower the company to deliver high-speed Internet to multi-dwelling units and urban communities and serve as a means to expand its FWA footprint. At present, Starry serves nearly 100,000 multi-dwelling units throughout Boston, New York, Los Angeles, Denver, and Washington, DC.

Long term, I think that this business has potential. It is certainly not going to be a high-growth prospect by any means. Rather, investors should expect steady and consistent growth over the next few years. Continued investments in expanding and improving its network should be anticipated. And, as the company grows, additional returns of capital to shareholders can be almost guaranteed.

* Top Wireless Communications Services Stocks [https://seekingalpha.com/screeners/9409aed1b2-Top-Wireless-Telecommunication-Services-Stocks]

MORE ON VERIZON

* AST SpaceMobile Is In The Stratosphere After Its Big Move With Verizon Communications [https://seekingalpha.com/article/4828636-ast-spacemobile-is-in-stratosphere-after-big-move-with-verizon-communications]
* AT&T: A Switch To Verizon Has Never Looked More Irresistible [https://seekingalpha.com/article/4828501-at-and-t-a-switch-to-verizon-has-never-looked-more-irresistible]
* Verizon: Repeating Problematic Past [https://seekingalpha.com/article/4827315-verizon-repeating-problematic-past]
* Market Voices: Verizon's Starry, AST deals; Amazon's drug kiosks [https://seekingalpha.com/news/4502755-market-voices-verizons-starry-ast-deals-amazons-drug-kiosks]
* Verizon buys smaller broadband company Starry to grow footprint in MDU areas [https://seekingalpha.com/news/4502662-verizon-buys-smaller-broadband-company-starry-to-grow-footprint-in-mdu-areas]