Verizon: Can This Stock Turn Around in 2025?
Thursday, Jan 16, 2025 4:22 am ET
Verizon Communications (NYSE: VZ) has had a challenging year in 2024, underperforming the broader market and facing several headwinds. As we approach 2025, investors are left wondering if this telecom giant can turn its fortunes around. Let's delve into the factors contributing to Verizon's underwhelming performance and explore whether there are any signs of improvement on the horizon.
Key Factors Contributing to Verizon's Underwhelming Performance in 2024
1. Historical Underperformance: Verizon has a history of underperforming the market. In the past five years, the stock has declined by 36% compared to the S&P 500's gain of 60%. This trend continued into 2024, with Verizon's stock underperforming the S&P 500's gain of 3.85% in the first four months of the year.
2. Economic Conditions: The economic environment in 2024 was characterized by rising interest rates and high inflation, which negatively impacted Verizon's business. Rising rates make its debt look more worrisome, while higher costs for consumers led to fewer phone upgrades and general cutbacks on discretionary spending.
3. Operational Challenges: Verizon's growth has been virtually nonexistent in recent quarters, with flat or declining earnings. In 2023, the company reported an operating profit of $28.7 billion, nearly identical to the $28.8 billion operating profit it posted three years earlier in 2020. This lack of growth contributed to Verizon's underwhelming performance.
4. Dividend Costs: Verizon's high-yielding dividend imposes significant costs on the company. The annual dividend payout of $11 billion places a tremendous burden on Verizon's balance sheet, which has a total debt of $152 billion and total equity of $96 billion. With nearly $16 billion of debt maturing over the next year, Verizon may face a cash crunch, potentially leading to a dividend cut.
5. Analyst Ratings: Although the average analyst rating for Verizon stock is "Buy," the stock price forecast has an average target of $46.07, which predicts an increase of only 20.67% from the current stock price of $38.18. This modest target reflects analysts' cautious outlook on Verizon's future performance.
The Role of Interest Rates and Economic Conditions in Verizon's Stock Performance
Interest rates and economic conditions have played a significant role in Verizon's stock performance. Rising interest rates make Verizon's debt look more worrisome, as the company's high debt levels increase the cost of borrowing. This can negatively impact Verizon's financials and potentially lead to a decrease in its stock price. Additionally, higher costs for consumers due to inflation have resulted in fewer phone upgrades and general cutbacks on discretionary spending, which can also negatively impact Verizon's wireless service revenue. On the other hand, lower interest rates could make Verizon's stock and its high-yielding dividend a more attractive option for income-seeking investors, potentially boosting its stock price. However, with economic conditions perhaps not bad enough to warrant several rate cuts this year, this may be an unlikely scenario. Many investors appear to be scaling back their expectations for rate cuts this year, given the strong jobs report released earlier this month. Overall, Verizon's stock performance is likely to be influenced by changes in interest rates and economic conditions, but the extent of this impact remains uncertain.
Potential Opportunities for Verizon in 2025
Despite the challenges Verizon faces, there are a few potential opportunities that could help the company turn its fortunes around in 2025:
1. 5G Expansion: Verizon is one of only three 5G providers, and the industry's massive fixed costs make it unlikely that additional competitors will enter it. As 5G technology becomes more widespread, Verizon could see increased demand for its services, driving revenue growth.
2. Fixed Wireless Access (FWA): Verizon's FWA business has been a bright spot, with the company reaching its fixed wireless subscriber target 15 months ahead of schedule. As FWA continues to grow, it could provide a significant source of revenue for Verizon.
3. Pending Acquisitions: Verizon has announced plans to acquire Frontier Communications, which could provide additional growth opportunities for the company. Additionally, Verizon's agreement with Vertical Bridge to lease, operate, and manage thousands of wireless communications towers could further enhance its network capabilities.
Conclusion
Verizon has faced several challenges in 2024, leading to underwhelming stock performance. However, the company's strategic investments in 5G and fixed wireless, as well as potential acquisitions, could provide opportunities for growth in 2025. As investors consider Verizon's prospects for the coming year, they should closely monitor the company's progress in these areas and assess the potential impact of interest rates and economic conditions on its stock performance. While Verizon faces significant challenges, there is still potential for the company to turn its fortunes around and deliver value for shareholders.
VZ Interval Closing Price
Name |
---|
Date |
Interval Closing Price(USD) |
VerizonVZ |
20200116-20250115 |
38.18 |
