KeyBanc Downgrades Verizon: Weaker Growth and Capital Allocation Concerns

KeyBanc Capital Markets recently downgraded Verizon Communications (NYSE: VZ) from an Overweight to a Sector Weight rating, expressing concerns about the company's financial future and growth prospects. The downgrade reflects KeyBanc's projections of a slowdown in Verizon's EBITDA growth and free cash flow, as well as apprehensions about the company's capital allocation strategy and subscriber growth.

Verizon's projected EBITDA growth is expected to be tepid, with estimates around 1.5% in 2025 compared to 2.2% anticipated for 2024. Additionally, the expected drop in free cash flow from $20.2 billion in 2024 to $17.5 billion in 2025 paints a somewhat grim picture for investors. KeyBanc's downgrade highlights the challenges Verizon may face moving forward, particularly in maintaining its financial health and profitability.


One critical point raised by KeyBanc revolves around Verizon's potential acquisition of Frontier (FYBR). The analyst raised doubts over whether this move would be a wise investment, suggesting it could hinder strategic capital for share repurchases. This concern underscores a broader apprehension regarding the company's financial decisions and the strategic direction it chooses to follow.

Challenges in subscriber growth are also raising alarms. Verizon's postpaid phone net additions are slowing down, combined with increased spending on device subsidies. This trend could pose risks to Verizon's profitability, as costs might be rising without equivalent gains in revenue.

Despite the existing challenges, KeyBanc has expressed that a reevaluation could take place if there is a significant pullback in valuation or if Verizon exceeds current performance expectations. At this moment, the cautious stance remains a reflection of the less optimistic outlook for Verizon's stock.


In recent developments, Verizon Communications reported achieving record EBITDA of $12.5 billion during its third-quarter earnings, highlighting a pivotal milestone for the company. Additionally, there was a modest 2.7% rise in wireless service revenue, paired with an impressive net addition of 239,000 postpaid subscribers. Despite these advancements, Scotiabank lowered Verizon's stock price target from $47.25 to $47.00 while maintaining a Sector Perform rating.

Understanding revenue dynamics, Verizon's steady year-over-year revenue of $33.3 billion fell short of Scotiabank's projections, slightly overshadowed by diminished wireless equipment sales and a decline in customer upgrade volumes.

Looking ahead, Verizon is focusing on enhancing its broadband expansion efforts. The company aims to reach over 100 million households by utilizing both fixed wireless access and fiber technologies. Current statistics show that Verizon has a customer base of approximately 11.9 million broadband subscribers, with goals to double its fixed wireless access subscribers by 2028.

Verizon's capital expenditures (capex) for fiscal year 2025 have risen by $750 million compared to the previous year, suggesting an uncertain trajectory for free cash flow growth in the coming year. However, Scotiabank has reaffirmed its Sector Perform rating on Verizon shares.

In conclusion, while KeyBanc raises caution flags concerning Verizon's financial future, the company's impressive revenue of $134.24 billion over the last twelve months as of Q3 2024, accompanied by a gross profit margin of 60.01%, showcases its formidable market position. This level of profitability might come as a relief to those who are invested in the company. As Verizon continues to navigate its strategic direction and broadband expansion plans, investors will be watching closely to see if the company can exceed current performance expectations and reassess the stock's outlook.