This article is part of a series tracking the effects of the COVID-19 pandemic on major businesses, and will be updated. It was originally published April 10.
Verizon Communications Inc.’s simple story has a bit more shine in the current climate.
At a time when rivals have preoccupied themselves with moves into the media landscape and other complex deals, Verizon VZ, +0.44% has largely stuck to what it does best: wireless and broadband. And these two areas seem safer than most as the COVID-19 pandemic rattles the globe.
Even in times of economic turmoil, consumers are unlikely to cancel their cellphone plans. That’s good news for Verizon, which generated about 70% of its revenue last quarter from its consumer and business wireless units.
That isn’t to say there aren’t risks for Verizon in wireless. Carriers have been investing heavily in their 5G networks in anticipation of a wave of new 5G devices later this year, including from Apple Inc. AAPL, +0.72% Now there’s concern that some of these devices may not be able to launch on time and that consumers could feel uneasy about paying up for pricey smartphone upgrades during a period of economic uncertainty.
Business in the age of COVID-19: Read how other large companies will be affected by the coronavirus
That is an issue for the industry as a whole, however, and relative to its telecommunications peers, Verizon seems to have fewer individual problems. The company’s big saving grace is that it has far less exposure to the media industry than rival AT&T Inc. T, +2.81% While the pandemic has curbed ad spending, Verizon’s media businesses, which include brands like Yahoo and AOL, account for less than 10% of company revenue. AT&T’s WarnerMedia segment makes up about 20% of sales.
The final element of Verizon’s business is wireline services such as broadband internet and video plans. Consumers probably won’t be canceling their internet service, especially with so many people working from home, but they might cut the cord on cable bundles due to a pause on live sports content, and there are some questions about how Verizon’s enterprise wireline business will hold up with so many companies facing economic duress.
What the numbers are saying
Revenue: Analysts surveyed by FactSet estimated $32.6 billion in first-quarter revenue for Verizon as of the end of March, down from a consensus forecast of $32.83 billion in late December.
For the full year, the late-March consensus outlook of $133.37 billion is roughly even with the $133.46 billion analysts had been calling for at the end of December, but estimates have come down since then. Analysts modeled $132.66 billion in full-year revenue, on average, as of April 9.
Earnings: Analysts tracked by FactSet have been modeling $1.22 a share in first-quarter earnings since the end of January. That’s down from an estimate of $1.24 a share as of late December.
Full-year profit estimates called for $4.90 a share in 2020 earnings as of March 31, down from a forecast of $4.95 a share as of late December.
Stock movement: Verizon’s stock outperformed the S&P 500 index SPX, +1.44% and the Dow Jones Industrial Average DJIA, +1.22% during the first quarter, falling 12% compared with a 20% decline for the S&P and a 23% drop for the Dow, which counts Verizon as a component. Verizon shares also performed better than those of fellow telecom giants AT&T and Comcast Corp. CMCSA, +0.84%, which saw their stocks drop 25% and 24%, respectively, during the first quarter. Rival T-Mobile US Inc. TMUS, -1.09% ended the quarter in positive territory, with shares up 7%, after its merger with Sprint cleared the final hurdles of approval.
Of the 27 analysts tracked by FactSet who cover Verizon’s stock, nine rate it a buy and 18 rate it a hold. That makes for one more buy rating than the company had as of the end of 2019. The average price target listed is $60.57 as of April 10.
What the company is saying
March 17: Verizon warned in a filing that the COVID-19 outbreak could have a “material” impact on its results but that it was too soon to make more precise estimates. The company pointed to travel restrictions, work-from-home policies, and supplier relationships, saying that some of these factors could increase demand for Verizon’s services while others could reduce demand.
What analysts are saying
• “We…believe that Verizon’s customer base is less impacted by an economic downturn than other carriers.” – Goldman Sachs analyst Brett Feldman, who analyzed FICO score data from company filings. He elevated Verizon’s stock to Goldman’s “conviction list” in an April 1 note to clients while maintaining a buy rating but lowering his price target to $61 from $67. He likes that the company has among the least leverage in its sector and seems well-positioned to cover its dividend.
• “Wireless could experience better near-term [earnings before interest, taxes, depreciation and amortization] on lower sales volumes, but we still believe these businesses will face some economic headwinds heading into 2021.” — Citi Research analyst Michael Rollins on March 25. He rates the stock at neutral with a $55 target price, down from a previous $62.
• “Our thesis on Verizon has been that while it has a less complicated business model, it had little upside to drive higher valuation or a meaningful catalyst” but “given the change in sentiment and market conditions, this no longer seems to be the appropriate way to look at the name.” – Raymond James analyst Frank Louthan IV, who upgraded Verizon’s stock to outperform from market perform on March 16. He set a $58 target on the stock.
• “We still expect over 20 5G handsets to enter the market this year including an iPhone version.” — Instinet analyst Jeffrey Kvaal, who has a neutral rating on the stock and lowered his price target to $61 from $65 in a March 30 research note. But he also warned that “the slower business market should weaken Verizon’s business revenues further.”
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