Verizon Shares Fairly Valued After First Quarter

Verizon VZ weathered COVID-19 reasonably well during the first quarter, though changes in its reporting structure (dubbed Verizon 2.0) make interpreting results more challenging. Management withdrew revenue guidance for 2020, owing primarily to the uncertainty around wireless phone sales, but lowered EPS expectations to a change of +/-2% versus 2019 from 2%-4% growth. Wireless service revenue in the second quarter is forecast to come in 3%-5% below management’s prior expectations (implying about a 2% year-over-year decline) because of lower overage charges, waived late fees, lower roaming revenue, and customer losses due to the economy. While this projected hit is slightly larger than we’d anticipated, several of the causes should dissipate over the course of the year. We expect wireless demand will remain very resilient in the face of economic weakness. Verizon indicated that about 800,000 customers (around 2% of wireless accounts) have contacted it regarding the FCC’s “Keep Americans Connected Pledge,” indicating difficulty paying their bills (not necessarily nonpayment). We don’t expect to change our $59 fair value estimate, and we view Verizon shares as fairly valued.

Net postpaid wireless customer losses hit 68,000, a bit worse than a year ago (44,000) and lagging AT&T’s 163,000 gain during the quarter. Verizon has posted relatively weak customer metrics during the first quarter for several years in a row, perhaps indicating somewhat more seasonality in its base than rivals’. With the COVID-19 impact materializing late in the quarter, average revenue per account increased 1.7% year over year, albeit the slowest pace in more than a year. This metric will likely decline over the remainder of the year. Wireless service revenue increased 1.9% versus a year ago during the quarter. Verizon no longer discloses wireless profitability, but segment margins likely improved nicely as phone upgrade volumes and gross customer additions slowed.

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