Verizon Continues to Build Momentum

Verizon's VZ efforts to attract and retain customers while promoting higher-end rate plans created solid momentum during the third quarter, driving strong wireless service and Fios revenue growth. While rivals haven't yet reported results, Verizon's market share is likely tracking a bit higher than we'd expected and revenue per customer is also growing faster than we'd anticipated. On the negative side, part of this growth comes with the added expense of delivering content like Disney+ to customers, which weighs on margins. We have made modest adjustments to our projections, resulting in a fair value estimate increase to $58 per share from $57. With the slide in its shares over the past couple of months, Verizon is starting to look attractive. We continue to prefer AT&T on a valuation basis, though. Verizon continued to bounce back strongly from a slow start to the year, adding 429,000 net new postpaid phone customers during the third quarter, nearly matching its gain during the same period in 2019. The firm's marketing and promotional efforts have effectively cut through a tough competitive environment, where AT&T is determined to steadily win share and all carriers are scrambling to put 5G-capable devices in customers' hands. Gross postpaid phone customer additions equaled the seasonally strong fourth quarter of last year while the pace of customer defections (churn) remained muted. We expect Verizon's willingness to hit back against competitor promotions to preserve market share will ultimately lead to a more benign competitive environment. While device promotions remain aggressive, Verizon hasn't had to offer heavy service pricing discounts to win customers. Revenue per consumer wireless postpaid account increased 3.8% year over year, the best mark in nearly three years (excluding the pandemic impact last quarter). Wireless service revenue increased 3.9% versus a year ago, and management now expects full-year growth to hit at least 4%.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.