How Verizon Could Offer Stress-Free Double-Digit Returns in 2025

Key Points

• Verizon shares pulled back after the Q3 earnings release, presenting an attractive opportunity the market is unlikely to pass by.
• Tepid growth is offset by cash flow strength, balance sheet improvement, capital return, and the growth outlook. 
• The stock has a deep value with a high 6% dividend yield and insulation from broader market downturns. 

Verizon NYSE: VZ is a total package for investors interested in stress-free total returns. The stock trades at a deep value relative to its historical average and the S&P 500; it pays more than 6% in yield and trades with a beta of nearly 0.5x. The factor that seals the deal is the outlook for capital appreciation, which is central to the investment thesis. The telecom stock is poised for a sustained rally that could increase its share price to $48 this year and extend the rally to the $58 level next year, with gains of 10% and 35% from critical support targets. 

Verizon Builds Leverage for Growth in 2025

Verizon’s Q3 results are mixed relative to the analysts' estimates but show stable business, solid and free cash flow, and the ability to sustain capital returns indefinitely. Revenue of $33.33 is down -0.1% on an 8% decline in equipment driven by macroeconomic headwinds but expected to revert to growth soon. 

The critical detail from Q3 2024 results is that services, the core of the business at 85% of the net, grew by 1.7% on a solid increase in wireless and broadband subscribers. The increase in subscribers is expected to continue in 2025 and may accelerate as the 5G network expands and more use cases become viable. Not only are consumer-oriented 5G apps expected to increase, but business use cases, including AI and IoT applications, will follow suit. 

Margin and cash flow are the story in 2024 and are expected to sustain strength in 2025. The company experienced operating margin pressures due to one-offs and non-cash impairments, but adjusted results are much better. The salient detail is that consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are up year-over-year (YOY), and the impact of severance charges and property-related balance sheet write-offs won’t be a factor in future quarters. The takeaway is that free cash flow was stable at $4.5 billion, down only $0.1 despite the severance charges, and sufficient to sustain balance sheet improvement and capital returns. 

The company's guidance is favorable to investors. It reaffirmed its guidance for revenue and earnings, suggesting results would be at the high end of the range. The target for adjusted EPS is $4.50 to $4.70 with a mid-point of $4.60, better than the $4.57 forecasted by the analysts' consensus and the whisper figures, which were expected to be worse. 

Analysts Provide a Tailwind for Verizon’s Stock Price

The analysts' activity in 2024 provides a tailwind for Verizon’s stock price because it includes rating upgrades and a positive revision trend. The 17 analysts tracked by MarketBeat lifted the sentiment to Buy from Hold and the price target by nearly 10%.

The consensus target implies a move to $46.30, good for a multi-year high, and the revision trend suggests a move into the $48 to the low-$50 range is likely. 

The balance sheet and capital return are primary drivers of analysts' interest. The stock yields a safe 6.25% with shares in the low $40s, and the balance sheet can sustain the payment and the growth outlook. Balance sheet highlights at the quarter’s end included positive cash flow, the cash balance doubling, rising assets, and declining liabilities.

The net result was a 4% increase in shareholder equity and a flexible financial position. The company utilizes debt but keeps leverage low, and it is falling, down 15 basis points in Q3 to 1.3x equity. Regarding the distribution growth outlook, Verizon is on track for inclusion in the Dividend Aristocrats in 2029. 

Verizon Pulls Back Into a Buying Opportunity

The price action in VZ shares pulled back following the earnings release, presenting an investment opportunity. The pullback aligns the market with a critical support target consistent with market reversal patterns and will likely produce a strong rebound. Assuming the market follows through on the signal, the share price of VZ will confirm a Head & Shoulders reversal and set up for a sustained rally that could last for four to six quarters.