On Wednesday, Deutsche Bank reiterated its Hold rating on Verizon Communications (NYSE:VZ) with a steady price target of $44.00. The firm adjusted its model to account for anticipated changes in the company's performance, including an increase in Consumer Postpaid and Prepaid Net Adds and Consumer Postpaid ARPU/ARPA. Additionally, the forecast now expects lower Corporate & Other EBITDA, which contributes to a reduced consolidated EBITDA and a decrease in Free Cash Flow (FCF).
The updated projections from Deutsche Bank include expectations for higher upgrade rates starting in the fourth quarter of 2024. This is in anticipation of the launch of iOS 18, which will feature new generative AI capabilities exclusive to the upcoming iPhone 15 and 16 models. The firm's valuation of Verizon is based on a 7.2% 2025 estimated Unlevered Free Cash Flow (UFCF) yield and a multiple of 6.5 times the estimated 2025 EBITDA.
Several factors are influencing the revisions for the second quarter and the full year of 2024. These include a modest increase in postpaid phone gross additions, which are being driven by customers adding second numbers and the company's successful execution of its business strategies. Furthermore, there is an expectation of higher Average Revenue Per User (ARPU) and Average Revenue Per Account (ARPA), which is attributed to recent price increases.
Verizon is also expected to face some financial pressures. Elevated handset insurance claims are anticipated to impact Corporate & Other EBITDA negatively. Additionally, the company is likely to incur higher cash taxes and interest expenses. The analyst's report concludes with an emphasis on the increased upgrade rate predicted for the final quarter of 2024, which is linked to the anticipated consumer response to the new iPhone releases and their exclusive features.
In other recent news, Verizon Communications has been the focus of several key developments. Scotiabank has updated its outlook on Verizon, maintaining a Sector Perform rating and raising the price target to $46.50. This update is based on anticipated improvements in Verizon's financial results, driven by positive wireless subscriber trends and pricing strategies.
Goldman Sachs initiated coverage on Verizon with a Buy rating and a price target of $50.00, highlighting potential growth from the deployment of fixed wireless across consumer and business sectors. The firm expects Verizon to sustain revenue and EBITDA growth and sees potential for increased capital returns and buybacks.
In board appointments, Verizon announced the addition of Caroline A. Litchfield, the current Executive Vice President and Chief Financial Officer of Merck & Co., Inc., effective from October 1, 2024. In regulatory matters, the Federal Communications Commission Chair, Jessica Rosenworcel, has requested Verizon, among other major telecom companies, to disclose their strategies against fraudulent AI-generated political robocalls.
In addition, telecommunications industry groups, including Verizon, are legally challenging the reinstatement of net neutrality rules by the Biden administration.
Lastly, Verizon has expanded its service offerings by including Comcast Corporation (NASDAQ:CMCSA)'s Peacock service in its streaming subscription hub, +play, and offering a discounted subscription to YouTube Premium for its myPlan subscribers. These are the recent developments for Verizon Communications.
InvestingPro Insights
As Verizon Communications (NYSE:VZ) navigates through changing market dynamics and consumer expectations, InvestingPro data highlights key financial metrics that could influence investor perspectives. With a market capitalization of $174.47 billion and a solid dividend yield of 6.42%, Verizon stands out as a substantial player in the telecommunications sector. Notably, the company's P/E ratio sits at a reasonable 15.47, reflecting investor sentiment on its earnings potential.
InvestingPro Tips underscore Verizon's commitment to shareholder returns, as evidenced by its impressive track record of raising dividends for 19 consecutive years and maintaining dividend payments for over four decades. Despite a slight revenue decline of 1.58% over the last twelve months as of Q1 2023, the company's substantial gross profit margin of 59.59% suggests efficient operations and the ability to generate profit from its revenue streams. Additionally, the company's low price volatility may appeal to investors seeking stability in their portfolio.
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