Verizon seen as 'inexpensive' ahead of expected dividend boost, but MS notes lack of catalysts
Justin Sullivan

Verizon (NYSE:VZ) shares have fallen 15% in 2022 and while the stock is seen as "inexpensive" ahead of an expected dividend increase next month, the lack of any near-term catalysts has left investment firm Morgan Stanley on the sidelines for now.
Analyst Simon Flannery, who has an equal weight rating and a $58 price target on Verizon (VZ), noted that shares trade at just 8.5 times estimated 2022 earnings, as the recent weakness is likely due to "disappointing" operational and financial results in recent quarters.
Flannery pointed out that the U.S. wireless industry is continuing to grow at a "healthy" clip, adding 2.2M postpaid phone customers last quarter, but Verizon (VZ) only accounted for 12,000 of those. And though Verizon (VZ) acts as a wholesaler for Comcast (CMCSA) and Charter (CHTR), those companies added more than 600,000 subscribers.
The tide is not expected to turn any time soon, with Verizon (VZ) expected to add only 36,000 in the coming quarter, as recent price increases increase churn, even with the launch of new services, including the $30 per line entry level Welcome Unlimited plan.
And though Verizon (VZ) now has a dividend yield 5.8% and is expected to boost it 2% on or around September 1, it's going to take better performance of its assets -- such as fixed wireless and its 5G network -- to give investors confidence.
"In the end what matters is the ability of the company to leverage these assets into sustainable operational and financial performance," Flannery wrote.
Flannery also noted that Verizon (VZ) will likely need to reiterate its guidance for 2022 when it reports third-quarter results, as it has cut guidance twice in a row.
"We hope that the company has already reflected a sufficiently conservative view on inflation, interest rates, promotional and other pressures in their guidance," the analyst added.
As for the prospects of stock buybacks, Flannery noted that Verizon's (VZ) 10% free cash flow yield make buybacks "increasingly attractive" compared to paying down debt, but it does not look likely the company will buy back stock for at least a couple more years.
Last week, MoffettNathanson downgraded Verizon (VZ), citing its beliefs that the wireless industry is getting more competitive and that Verizon has been the "biggest loser" from AT&T's (T) aggressive promotional stance.