I see an extraordinary opportunity to buy best-in-class companies in the essential telecom industry at bear market valuations, suggests Roger Conrad, editor of Conrad's Utility Investor.
Over the next 12 to 18 months, leading communications providers elsewhere will start to see a 5G payoff. Verizon Communications (VZ) is in the best position to realize revenue from these new businesses and applications.
The best network will win the most business — and that was the underlying premise behind Verizon's successful rise to become America’s largest wireless company, as the leader of the previous decade’s 4G revolution.
So far, it hasn’t worked out that way in the US 5G race. I believe the productivity revolution 5G offers will ultimately favor the far more robust network Verizon is deploying. That’s particularly true on the enterprise side where “latency” or signal delay issues are paramount.
Verizon has consistently grown its now 44 percent share of the business-to-business market in recent years. And it’s adding to a 55 percent share of the public sector space as well, including all the “three-letter” US agencies and the government of Australia.
Last year’s purchase of vast swaths of C-Band resolved the company’s spectrum needs. And management is still deploying small cells, fiber broadband and cloud capability with scale and speed that’s impossible for smaller players to match.
That’s why cable television giants Comcast Corp. (CMCSA) and Charter Communications (CHTR) signed wireless service re-sale agreements with Verizon, rather than build rival networks. And they’ve provided another profitable revenue stream for the company, even as data usage on its 5G Ultra Wideband network has surged 249 percent since early 2021.
Verizon’s solid Q1 results featured 9.5 percent wireless service revenue growth, 10.9 percent higher consumer sales and the most wireline broadband additions in “over a decade.” Those numbers were overshadowed temporarily by management’s cautionary inflation guidance. But since then, the company has successfully pushed through modest fee increases that will generate an additional $100 million in revenue.
That’s fuel for a potential guidance beat later this year, even if 5G growth continues to unfold slowly. And investor expectations won’t be hard to top with the stock selling for just 9.5 times expected next 12 months earnings. The stock is exceptionally cheap; buy Verizon up to $65.
