Verizon Stock Is Up 10% This Year. Is It Still Buy Ahead of Earnings?
As competitive threats loom, here’s what we’ll be looking for.Verizon Communications is set to release its third-quarter 2026 earnings
report on Oct. 26. Here’s Morningstar’s take on what to look for in
Verizon’s earnings and the outlook for its stock.What to Watch for in Verizon Communications’ Q3
Earnings
Continued improvement in postpaid phone customer churn and net
additions. Verizon set a goal of capturing 10%-15% of industrywide
postpaid phone net customer additions in 2026, up from a low-to-mid
single-digit percentage in recent years. The firm aims to achieve most
of this improvement through lower customer defections (churn), and it
has seen some improvement in this metric so far this year. But it still
has a long way to go to get back to industry-leading levels.
Stabilization in average revenue per customer and a continued
decline in phone upgrade rates. Verizon has cut pricing to improve
retention, but it has offset this with less generous phone upgrade
offers. We think this shift was smart, moving pricing more in line with
T-Mobile. If average revenue per customer takes another leg down,
though, our view could change.
Solid cash flow and debt reduction. Verizon has generated strong
cash flow thus far in 2026, and we expect that to continue. The firm
has started repurchasing shares rather than repaying debt, a move we
think was premature given current leverage metrics. We’d like to see
the firm shift its tone to emphasize debt reduction more explicitly,
given the potential for an expensive spectrum auction in 2027.
Verizon shares are undervalued, in our view, but we would prefer T-Mobile
among the major US wireless carriers. Verizon’s yield is nice, but we think
T-Mobile’s lower dividend payout ratio of free cash flow and stronger
balance sheet give it more flexibility amid elevated uncertainty around
SpaceX.The following are excerpts from Morningstar’s company report on Verizon
Communications.With its 4-star rating, we believe Verizon Communications’ stock is
moderately undervalued. We expect Verizon to gradually lose postpaid wireless market share to
smaller rivals T-Mobile and AT&T as the firms’ shares slowly converge.
With a rational competitive environment and stable service pricing, we
expect revenue per postpaid customer to grow modestly but steadily over
the long term.
Over the next five years, we expect average annual wireless service
revenue growth of about 2%, with acceleration to 3% in 2028 after most
customers move to new rate plans. After a bump from the Frontier
acquisition in 2026, we expect consumer fixed-line broadband revenue to
grow 13% annually through 2030 as Fios continues to attract broadband
customers and pricing power remains strong.We assign Verizon a narrow economic moat, stemming from the wireless
industry’s efficient scale characteristics. Verizon, AT&T, and T-Mobile
dominate the US wireless market, claiming around 90% of retail postpaid
phone customers.
The massive consolidation across the industry over the past 15 years and
the inability of several interested parties to enter the market with their
own networks provide evidence of efficient scale. We don’t believe
building a terrestrial wireless network would be a rational financial
decision for the industry’s latest threat, SpaceX, but it has very deep
pockets and could choose to push forward anyway.Verizon transformed its balance sheet when it took on more than $65
billion of incremental debt in 2014 to finance the purchase of Vodafone’s
45% stake in the Verizon Wireless joint venture. Following that transaction,
net debt leverage increased to 2.5 times EBITDA. Net debt stood at $164
billion at the end of the second quarter of 2026, putting net leverage at
about 3.2 times normalized EBITDA.
Management’s leverage targets now exclude debt secured by receivables
and a partial credit for the equity component of its junior subordinated
notes. The firm hopes to maintain unsecured leverage between 2.00 and
2.25 times EBITDA. On this basis, leverage currently stands at 2.5 times,
up from 2.3 times a year ago.
The firm has started to repurchase shares, despite leverage sitting above
the targeted range. Management expects net leverage to return to its
target by 2027, but we would prefer the firm move more quickly to repay
debt given the potential need to invest in additional wireless spectrum or
other assets.We’ve raised our Uncertainty Rating to High from Medium, as SpaceX
continues to threaten to enter the US wireless market. Verizon primarily
faces regulatory and technological uncertainties, as well as the potential
for irrational competition. SpaceX embodies all three, as it has developed
new communications technologies, successfully lobbied regulators, and
amassed the resources to compete aggressively in traditional telecom
markets if it chooses.
Regulators control wireless spectrum licensing, which creates
opportunities to influence the wireless industry. A flood of new spectrum
could drive down prices, further easing entry into the wireless business.
Wireless and broadband services are often considered necessary for
social inclusion in terms of employment and education. If Verizon’s
services are deemed insufficient or overpriced, regulators or politicians
could step in.Wireless technology continues to evolve, enabling more efficient use of
spectrum. Technology could eventually lower barriers to entry for firms
that have long wanted to enter the business, including the large cable
companies. Satellite technology could also improve to threaten both the
wireless and broadband businesses.