Verizon has hit a speed bump, but earnings could show a better road ahead

Verizon is facing some identity issues in the current wireless market. The company was used to relying on its “network advantage” to justify its “premium” pricing, but now analysts see that advantage slipping due to T-Mobile US Inc.’s
TMUS,
+2.39%
positioning in the 5G landscape.

Nonetheless, Vestberg and other Verizon executives have been upbeat about the company’s strategy. At the Goldman conference, Vestberg called the price increases “a financially right and sound decision in order to continue to grow our cash flow,” while emphasizing that the company was “not going to throw away money” on promotions. Verizon’s wireless deals have been seen as less aggressive than what some rivals were offering, though all of the major carriers were fairly promotional during the recent iPhone launch cycle.

Read: Verizon is ‘not going to throw away money’ to woo consumers with cheaper phones, CEO says

“Verizon had been relatively mispositioned in the marketplace (higher price points while ceding #1 5G network status to T-Mobile) amidst a more inflation-challenged consumer,” wrote Cowen & Co.’s Gregory Williams. “Verizon has since course-corrected with starter plans and a new prepaid launch.”

Shares of Verizon have struggled in recent months, and they posted their worst quarterly performance in 20 years during the third quarter. While the company has already suggested that third-quarter results won’t contain particularly pretty subscriber numbers, investors will be looking to the company’s commentary for expectations of when and how much things will improve going forward.

See also: Verizon hasn’t been a very defensive stock lately, but here’s how things could flip

“We believe the catalyst will be the gradual stabilization-to-growth of its subscriber base,” wrote Oppenheimer analyst Timothy Horan, who noted that the company is on track to “substantially improve its network through new spectrum deployments” that will increase depth.

Truist Securities analyst Greg Miller added that of the three big wireless carriers, “Verizon has been affected the most by increased competition and experienced continued declines in its postpaid subscriber base.” He expects additional residential postpaid phone net losses in the third quarter, but anticipates that Verison’s new Welcome Unlimited plan, which is meant to encourage people to switch to the network, will “start gaining traction on the back of a seasonally stronger operating environment in 4Q22.”

Verizon may need beyond the fourth quarter to show substantial improvement in its subscriber numbers, however, according to Miller.

“While we expect it will remain difficult for Verizon to slow the rate of erosion in 4Q22, even with gross adds having been reported to be improving in late 3Q22, we don’t look for trends to meaningfully improve until 2023,” he wrote.

Verizon is due to report third-quarter results before the closing bell Friday, a day after peer AT&T Inc.
T,
+2.20%
delivers its own results. Both reports will offer hints about the strength of Apple Inc.’s
AAPL,
+2.20%
iPhone 14 in the weeks since the Sept. 9 launch of most models.

Here’s what to watch for when the company reports earnings.

Read: Verizon’s ‘attractive’ dividend and growth potential earn stock an upgrade

What to expect

Revenue: Analysts tracked by FactSet anticipate that Verizon generated $33.78 billion in revenue, up from $32.90 billion a year before. On Estimize, which crowdsources projections from academics, hedge funds and others, the average estimate calls for $33.86 billion in revenue.

Earnings: The FactSet consensus calls for $1.29 a share in adjusted earnings, while the Estimize consensus is for $1.28 a share.

Stock movement: Verizon shares have fallen following the company’s past three earnings reports. The stock is down 29% over the past three months and off 30% on a year-to-date basis. The Dow Jones Industrial Average
DJIA,
+1.82%
is down 18% over a three-month span and off 16% so far this year.

Of the 29 analysts tracked by FactSet who follow Verizon’s stock, six have buy ratings, 20 have hold ratings and three have sell ratings, with an average target price of $49.01.

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