Wolfe downgrades Verizon on growth, cost concerns

Investing.com -- Wolfe Research downgraded Verizon Communications (NYSE:VZ) to “Peer Perform,” citing challenges in subscriber growth, rising costs, and capital allocation dynamics that could limit upside in the near term.

Verizon has struggled to grow its consumer postpaid phone subscribers, adding just 100,000 in 2024 despite multiple initiatives, including expanded broadband offerings and bundling perks. The firm’s 2025 guidance for subscriber growth appears at risk, Wolfe said, given management’s latest comments on first-quarter trends.

“If not now, how?” Wolfe analysts wrote, noting that Verizon’s efforts over the past two years, including C-band rollout and sales force incentives, have not driven meaningful volume gains.

Meanwhile, rising costs remain a key concern. Verizon has maintained stable pricing in its core postpaid segment, but net income and free cash flow (FCF) have remained range-bound. Wolfe attributes this to 5G-related expenses and inflationary pressures on labor, capital, and subscriber acquisition.

Verizon’s capital allocation strategy also raises questions. The company’s post-5G free cash flow has largely been directed toward its pending acquisition of fiber-optic provider Frontier Communications (OTC:FTRCQ), limiting flexibility for share buybacks or further organic fiber expansion. In contrast, AT&T (NYSE:T) is launching a major buyback program while accelerating its fiber expansion at a much faster rate than Verizon.

While Verizon shares have gained 8.6% year-to-date, outperforming cable peers but lagging AT&T and T-Mobile, Wolfe sees limited upside.

Verizon offers ‘discount rate’ returns, but near-term growth remains the slowest among the Big Three.

Verizon currently trades at 6.4 times its next-12-month enterprise value-to-EBITDA, in line with historical averages and cable peers but at a discount to broader telecom and S&P 500 valuations.

Wolfe did not set a price target for Verizon, in line with its policy for “Peer Perform” ratings.