We called out Verizon (NYSE:VZ) a few weeks ago has a high yield stock that just went on sale. A downgrade from Barclays on a diminished outlook sent the stock down to an 18-month low that now, in hindsight, looks like a class-A buying opportunity. The reason is that Verizon produced a strong report despite the naysaying Barclays and produced earnings above the consensus estimate. Along with that is improved guidance that not only enhances the growth outlook but also improves the value and the outlook for dividends. Trading at only 9.9X its consensus earnings estimates Verizon is a deep value relative to the broad market had one that yields almost 5%.
Mixed Results Fail To Faze Verizon Shareholders
Verizon produced a mixed report to be sure but there is a mitigating factor. While the company's revenue missed the consensus by a slim 100 basis points the margins widened. Verizon reported $32.90 billion in net consolidated revenue for a gain of 4.4% over last year driven by better-than-expected postpaid additions and strength in the fios segment. Postpaid additions netted 699,000 new customers for Verizon versus the expectation of 566,000 aided by 5G. The adoption of 5G was specifically cited as a driver for this quarter's revenue strength and an area of growth the company was working to accelerate.
On a net basis, income increased 45.5% over last year on the combination of pricing, revenue leverage, and the reduction of deferments and discounts given during the pandemic. On an adjusted basis, EBITDA of $12.30 billion is up 3.3% over last year and drove strong results on the bottom line. Both the GAAP earnings and the adjusted earnings beat the consensus estimate despite the revenue weakness and led the company to raise the full-year guidance as well. The GAAP earnings of $1.55 beat the consensus by $0.20 while the adjusted earnings of $1.41 beat by a nickel.
Looking forward, the company is expecting strength to continue into the fourth quarter and has adjusted guidance for the full year because of it. The company is now expected full-year adjusted EPS in the range of $5.35 to $5.40 versus the previous range which had a high end of $5.35 and the consensus estimate of $5.29. Assuming postpaid additions and strength in 5G continues, we see upside risk in the guidance.
The Analysts Are So Far, Silent
There has been a single analyst action since Barclays (LON:BARC) downgraded to hold but nothing since the Q3 earnings report was released. We'd be surprised if the analysts at Barclays weren't rethinking their decision and expect to see some bullish activity in the near future. The Market beat.com consensus rating for the stock remains a Hold verging on Buy with a price target near $60. The consensus price target assumes about 12% of upside for the stock While the high price target assumes a more robust 25%.
Range-Bound Verizon Is Moving Higher
Shares of Verizon have been range-bound since late in 2019 but I've recently bounced off the bottom of that range. Price action is now moving higher, supported by better-than-expected earnings and a positive outlook, and should continue to move higher in the near to midterm. In our view, Verizon offers a deep value and a high yield so it should attract strong support. If price action can get up to and above the $61.50 level there is a chance of it breaking out to a new high. That said, the all-time high near $62 that was set way back during the Dot.com bubble is still in effect. A break above that level would be truly bullish.
